This article documents that government T-bills provided a higher yield to maturity than an equally risky illiquid asset (bank deposits) in Israel. The difference between the return on the liquid asset relative to the illiquid asset is higher in periods of greater uncertainty. This cannot be attributed to taxes, risk, or transaction costs. We suggest that the observed puzzle is due to the positive correlation between liquidity and the flow of market information. We use the term "ostrich effect" to describe investor behavior, since ostriches are believed to treat apparently risky situations by pretending they do not exist.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006) Issue (Month): 5 (September) Pages: 2741-2740 Download reference. The following formats are available: HTML
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