Scattered Deifinitions of Liquidity

Post date: Jun 4, 2013 2:17:27 AM

I found out the following scattered definitions of liquidity by Professor Thomas Sargent from his keynote address for Bank of Korea Conference 2013 useful.

1. An asset is said to be liquid or the state of a market for that asset is said to be liquid if you can rapidly find someone to write a repo against it with a small haircut. Contact rates are high

2. An asset is liquid if bid-ask spreads are low

3. An asset is liquid if the default rate is low

4. An asset is liquid if people agree about its value

5. An asset is liquid if it is a medium of exchange

6. An asset is said to be illiquid if when its value is less than the discounted present value of its dividends.

7. An asset is liquid when big trades don't affect its price much.

8. An asset is liquid if big trades have at most temporary effects on prices.

From Professor Gary Gorton's presentation:

Keynes: An asset is liquid if its value is "more certainly realizable at short notice without loss."