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Markets Do Not Select For a Liquidity Preference as Behavior Towards Risk


Hens, Thorsten; Schenk-Hoppé, Klaus Reiner (2002). Markets Do Not Select For a Liquidity Preference as Behavior Towards Risk. Working paper series / Institute for Empirical Research in Economics No. 139, University of Zurich.

Abstract

Tobin (1958) has argued that in the face of potential capital losses on bonds it is nreasonable 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.

Abstract

Tobin (1958) has argued that in the face of potential capital losses on bonds it is nreasonable 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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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:December 2002
Deposited On:29 Nov 2011 21:26
Last Modified:07 Dec 2017 10:07
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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