Liquidity diversification

Similar financial terms

Liquidity risk on bonds
The primary measure of liquidity is the size of the bid-ask spread. Liquidity risk depends on the ease with which an issue can be sold at or near its value. It follows that the wider the dealer spread, the more liquidity risk.

Accounting liquidity
The ease and quickness with which assets can be converted into cash

Liquidity premium
The amount that forward interest rates exceed expected future spot interest rates.

Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward rates will not be a pure estimate of the market's expectations of future interest rates because they embody a liquidity premium.

Liquidity risk
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.

Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time.

Liquidity preference hypothesis
The argument that greater liquidity is valuable, all else equal. Also, the theory that the forward rate exceeds expected future interest rates.

Liquidity
A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.

Diversification
The holding of assets whose returns are not perfectly correlated

Principal of diversification
Highly diversified portfolios will have negligible unsystematic risk. In other words, unsystematic risks disappear in portfolios, and only systematic risks survive.

Naive diversification
A strategy whereby an investor simply invests in a number of different assets and hopes that the variance of the expected return on the portfolio is lowered.

Markowitz diversification
A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return.

Magic of diversification
The effective reduction of risk (variance) of a portfolio, achieved without reduction to expected returns through the combination of assets with low or negative correlations (covariances).