IDEAS home Printed from
   My bibliography  Save this article

The "Ostrich Effect" and the Relationship between the Liquidity and the Yields of Financial Assets


  • Dan Galai

    (The Hebrew University of Jerusalem)


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.

Suggested Citation

  • Dan Galai, 2006. "The "Ostrich Effect" and the Relationship between the Liquidity and the Yields of Financial Assets," The Journal of Business, University of Chicago Press, vol. 79(5), pages 2741-2759, September.
  • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:5:p:2741-2740

    Download full text from publisher

    File URL:
    File Function: main text
    Download Restriction: Access to the online full text or PDF requires a subscription.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Clements, Kenneth W., 2004. "Three facts about marijuana prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), June.
    2. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-350, July.
    3. Gerstner, Eitan & Hess, James D, 1987. "Why Do Hot Dogs Come in Packs of 10 and Buns in 8s or 12s? A Demand-Side Investigation," The Journal of Business, University of Chicago Press, vol. 60(4), pages 491-517, October.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Lin, Mei-Chen, 2015. "Seasonal affective disorder and investors’ response to earnings news," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 211-221.
    2. Marianne Andries & Valentin Haddad, 2017. "Information Aversion," NBER Working Papers 23958, National Bureau of Economic Research, Inc.
    3. Gherzi, Svetlana & Egan, Daniel & Stewart, Neil & Haisley, Emily & Ayton, Peter, 2014. "The meerkat effect: Personality and market returns affect investors’ portfolio monitoring behaviour," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 512-526.
    4. Marco Pleßner, 2017. "The disposition effect: a survey," Management Review Quarterly, Springer;Vienna University of Economics and Business, vol. 67(1), pages 1-30, February.
    5. Valentin Haddad & Marianne Andries, 2014. "Information Aversion," 2014 Meeting Papers 1091, Society for Economic Dynamics.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:79:y:2006:i:5:p:2741-2740. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.