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Markets do not select for a liquidity preference as behavior towards risk

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  • Hens, Thorsten
  • Schenk-Hoppe, Klaus Reiner

Abstract

Tobin (1958) has argued that in the face of potential capital losses on bonds it is reasonable to hold cash as a means to transfer wealth over time. It is shown that this assertion cannot be sustained taking into account the evolution of wealth of cash holders versus non cash holders. Cash holders will be driven out of the market in the long run by traders who only use a (risky) long-lived asset to transfer wealth.
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  • Hens, Thorsten & Schenk-Hoppe, Klaus Reiner, 2006. "Markets do not select for a liquidity preference as behavior towards risk," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 279-292, February.
    • Handle: RePEc:eee:dyncon:v:30:y:2006:i:2:p:279-292
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    Cited by:

    1. J. Emeterio Navarro-Barrientos & Frank E. Walter & Frank Schweitzer, 2008. "Risk-Seeking Versus Risk-Avoiding Investments In Noisy Periodic Environments," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 19(06), pages 971-994.
    2. De Giorgi, Enrico, 2008. "Evolutionary portfolio selection with liquidity shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1088-1119, April.
    3. Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2008. "Evolutionary Finance," Swiss Finance Institute Research Paper Series 08-14, Swiss Finance Institute.
    4. Bruno Frey, 2005. "‘‘Just forget it.’’ Memory distortions as bounded rationality," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 4(1), pages 13-25, June.
    5. Chiarella, Carl & Dieci, Roberto & Gardini, Laura, 2006. "Asset price and wealth dynamics in a financial market with heterogeneous agents," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1755-1786.
    6. Igor V. EVSTIGNEEVY & Thorsten HENS & Klaus Reiner SCHENK-HOPPE, 2010. "An evolutionary financial market model with a risk-free asset," Swiss Finance Institute Research Paper Series 10-36, Swiss Finance Institute.
    7. Thomas Holtfort, 2019. "From standard to evolutionary finance: a literature survey," Management Review Quarterly, Springer, vol. 69(2), pages 207-232, June.

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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