Thompson, B.H. Jr.: Liquid Asset: How Business and Government can Partner to Solve the Freshwater Crises

We find optimal trading policies for long-term investors with constant relative risk aversion and constant investment opportunities, which include one safe asset, liquid risky assets, and an illiquid risky asset trading with proportional costs. Access to liquid assets creates a diversification motive, which reduces illiquid trading, and a hedging motive, which both reduces illiquid trading and increases liquid trading. A further tempering effect depresses the liquid asset's weight when the illiquid asset's weight is close to ideal, to keep it near that level by reducing its volatility. Multiple liquid assets lead to portfolio separation in four funds: the safe asset, the myopic portfolio, the illiquid asset, and its hedging portfolio.

Do financial market participants free-ride on liquidity? To address this question, we construct a dynamic general equilibrium model where agents face idiosyncratic preference and technology shocks. A secondary financial market allows agents to adjust their portfolio of liquid and illiquid assets in response to these shocks. The opportunity to do so reduces the demand for the liquid asset and, hence, its value. The optimal policy response is to restrict (but not eliminate) access to the secondary financial market. The reason for this result is that the portfolio choice exhibits a pecuniary externality: An agent does not take into account that by holding more of the liquid asset, he not only acquires additional insurance but also marginally increases the value of the liquid asset which improves insurance to other market participants.

The process of monetization and financial development has proceeded rapidly in Thailand in the period since World War II. The public's holdings of liquid financial assets rose more than tenfold between 1947 and 1967. In the process, the ratio of liquid assets to GNP rose from about one-sixth to about one-third. Growth was accompanied by important changes in asset composition. Deposits with commercial banks gained in proportional importance relative to liabilities of the central bank, and interest-bearing assets generally gained at the expense of currency and demand deposits. This paper surveys the facts of Thai financial development. Analysis of the data indicates that there have existed relatively stable demand functions by the public for financial assets, particularly in relation to real nonagricultural income. These functions have been subject to periodic shifts, but those can generally be explained by developments relating to interest rates and other characteristics of financial assets, branch banking, and the availability of nonmonetary gold. An important general conclusion is that, in an atmosphere of relatively stable prices and stable government, the income elasticity of the public's demand for liquid financial assets has been substantially higher than unity. Further, since 1955 the gross marginal propensity to hold liquid financial assets has averaged about two-fifths relative to GNP in current prices. This condition has contributed importantly to the institutionalization of saving and investment. The demand for government securities, by the public and the banking system combined, has displayed a particularly high income elasticity. Consequently, the

After the bankruptcy of Lehman and the takeover of AIG in mid-September 2008, fear began to spread like wildfire. Corporations and households massively increased their demand for liquid assets. Keynes vividly described the motive behind the rush to liquidity that seizes markets in the aftermath of a huge negative shock to expectations: Our desire to hold Money as a store of wealth is a barometer of the degree of our distrust of our own calculations and conventions concerning the future. Even though this feeling about Money is itself conventional or instinctive, it operates, so to speak, at a deeper level of our motivations. It takes charge at the moments when the higher, more precarious conventions have weakened. The possession of actual money lulls our sense of disquietude; and the premium which we require to make us part with money is the measure of the degree of our disquietude.2 The increase in the “premium which we require to make us part with money” was reflected in a decline in demand for all goods and assets other than money, which created downward pressure on all prices. The panicked rush to acquire liquid assets actually reduced liquidity in the economy. To understand why, I need to explain a bit more about the concept of liquidity. Keynes wrote that one asset is more liquid than another if it is “more certainly realizable at short notice without loss.”3 In normal times, there is a spectrum of liquidity and different assets have greater or lesser degrees of it, money being the most liquid asset.

Discussion

Keynes (1930) proposed that an asset is more liquid than another “if it is more certainly realisable at short notice without loss” (vol. II, p. 67). This definition suggests that the liquidity of an asset is twofold. First, an asset should have a market that can readily absorb the sale, and second, do so without risk to its final value. This suggests that investors should be rewarded for both the level of liquidity and liquidity risk. The standard form of asset pricing models assumes financial markets to be perfectly liquid. In a perfectly liquid market, there are no arbitrage possibilities. Therefore, the under traditional asset pricing approach, all assets that have similar expected cash flows must have the same price. This phenomenon of frictionless markets ignores the impact of liquidity of financial assets on their respective prices and consequently on returns. The relation between liquidity and expected returns has been statistically observed and explains certain market anomalies such as the small firm effect, equity premium, and risk-free rate puzzle. In a market with frictions, one source of illiquidity is transaction costs, which are ignored in the traditional asset pricing framework. Such costs might include brokerage fees, order processing costs, etc. Whenever a security is traded, the buyer and seller incur transaction costs. Moreover, the buyer will bear additional transaction costs whenever the security is further sold in the market. Apart from transaction costs, other sources of liquidity could be demand pressure and inventory risk. Demand pressure can be created in a market where buyers are not available, and to liquidate the position, the seller might have to settle for a much lower price. The factor of demand pressure might be worsened in the presence of circuit breakers in a continuously bearish market. If the prices hit the lower circuit, sellers will not be able to lay off their positions and this phenomenon will continue if, on the following days, prices continue to open on their lower

Banks manage liquidity carefully because of differences in fund tenor collected and channeled. Meanwhile, at the same time, it must fulfill transaction needs, reserve requirement, current liabilities, and be cautious in facing sudden liquidity needs. Therefore, bankshold a sufficient amount of liquid assets. Liquidity management tends to be a trade-off. On one side, insufficient liquid assets can cause banks to be unable to carry out transactions with its customers or fulfill its maturity obligations. On another side, high liquid assets can result in a lost opportunity, because the liquid assets do not provide a return. The purpose of this research is to analyze what factors influence the level of banks liquid assets. This research was conducted using a dual regression model to analyze the variables studied, with a case study of PT Bank Syariah Mandiri from 2016-2017.The dependent variable was the level of liquid assets. Meanwhile, the independent variables were the amount of third party funds, financing growth, financial market access between banks, current liabilities, and previous month profit. The research results reveal that two variables are statistically significant towards bank liquid assets, which are third-party funds and previous month profit. Third-party funds and previous month profit have a positive and significat influence towards liquid assets. Meanwhile, the other variables do not significantly determined liquid assets.

PRIOR TO THE 1960s virtually all foreign holdings of liquid dollar assets took the form of U.S. private and governmental liabilities to foreigners. The development of the Eurodollar market has introduced a large volume of international liquidity in the form of dollar liabilities of foreign commercial banks, equal to or larger than the volume of U.S. liquid liabilities to foreigners. Part I of this paper discusses the foreign demand for liquid dollar assets both American dollars and Eurodollars, and the substitutability among Eurodollar deposits, American liquid dollar assets and nondollar liquid assets. Part II is mainly concerned with how the operations of the Eurodollar market affect foreign private or non-ofElcial holdings of American liquid dollar assets relative to foreign official holdings of American liquid dollar assets. These latter effects, which are of special importance for the U.S. balance of payments, are determined in large part by the pattern of demand for the two categories of liquid dollar assets. In the following analysis, I assume that Eurodollar deposits arise from the deposit of American dollars in a bank outside the United States, and that the ultimate borrowers of Eurodollars want American dollars for making dollar payments, or for making non-dollar payments by converting the borrowed dollars into nondollar currencies, or for increasing their holdings of American dollars. I also assume that

In dependence of kind of realized mission, sensitivity on risk, which is a result of decision about liquid assets investment level and liquid assets financing. The kind of organization influence the best strategy choice. If an exposition on risk is greater, the higher level of inventories, accounts receivable and operating cash should be. If the exposition on that risk is smaller, the more aggressive will be the net liquid assets strategy and smaller level of inventories. The organization choosing between various solutions in liquid assets needs to decide what level of risk is acceptable for her owners and capital suppliers. That choice results with financing consequences, especially in cost level. It is a basis for considerations about relations between risk and expected benefits from the liquid assets decision and its results on financing costs for both nonprofit or for profit organizations. The paper shows how in authors opinion decisions about liquid assets management strategy and choice between kind of taxed or non-taxed form inflow the risk of the organizations and its economical results during realization of main mission. Comparing the theoretical model with empirical data for 1000 Polish nonprofit organization results, suggest that nonprofit organization managing teams choose higher risky aggressive liquid assets solutions than for-profit organizations.

THE role of liquid assets as well as other assets has received considerable attention in the war and postwar years, as economists and other interested observers have watched with obvious fascination the ever-mounting totals of currency, bank deposits, and particularly, government securities.2 These vast hoards of money and near money must have had, it was argued, an appreciable effect on consumers' decisions to spend and save, as well as on producers' decisions to invest. Some even felt that these assets were bound to result in a runaway inflation after the war and the wartime controls were over. Others minimized their influence. Still others looked upon liquid assets as an automatic stabilizer from a cyclical as well as a secular standpoint. Excluding the question of the effect of liquid assets on post World War II economic activity, liquid assets have also been used by various economic theorists for a wide range of hypotheses concerning consumer behavior, raising the asset effect almost to the level of a deus ex machina. Some have argued that liquid assets are a stabilizing secular influence,3 implicit in the classical position.4 Others have argued that liquid assets are the major factor accounting for the constancy of the ratio of saving to national product.5 Contrasted with the reliance of liquid assets as a secular force is the dominant role they assume for others in the cyclical process.' Finally, liquid assets have even been proposed as the major influence determining the shape of the cyclical consumption function.7 The position of the author is as follows: whatever the effect of liquid assets in a priori reasoning as we have just seen this is manifold it must be grounded in empirical observations.8 A. P. Lerner has expressed this in another and perhaps more interesting way by saying that liquidity is a commodity and should be looked upon as any other good or service in analyzing decisions to spend or save. Before turning to the evidence, such as it is, let us recall briefly the mechanics of the impact of liquid assets on consumption and investment.

The authors investigated whether the relationship between parents' economic resources and children's educational attainment had changed over time by comparing two cohorts from the Panel Study of Income Dynamics. Using probit regressions and Chow tests, they examined multiple measures of economic resources, including income, net worth, liquid assets, and home ownership. Results show that the associations between parents' liquid assets and college attendance became significantly stronger among the latter cohort, suggesting the increasing importance of liquid assets. Of particular interest is a change in the role of negative liquid assets (unsecured debt exceeding savings) in high school graduation: Among the former cohort, there was no difference in likelihood of graduation between students from families with negative liquid assets and those from families with zero liquid assets, but among the latter cohort, the former were more likely graduate than the latter. Results demonstrate the importance of using diverse measures of economic resources in studying associations between parents' resources and children's educational attainment. KEY WORDS: assets and debt; cohort; education; income; inequality ********** Equal educational opportunity is considered a key indicator of a society's fairness. It is a deep-rooted belief in U.S. culture that every child should have an equal opportunity receive the best possible education. Educational opportunity is of particular importance social workers, whose mission is to enhance human well-being and help meet the basic human needs of all people, with particular attention the needs and empowerment of people who are vulnerable, oppressed, and living in (NASW, 2008, p. 1). Although it is generally recognized that education is a crucial path toward future well-being, it is not clear whether equal educational opportunity exists in the United States. The existing literature indicates that parents' economic resources are strong predictors of educational attainment: Children from high-income and wealthy families are likely achieve better educational outcomes than are economically disadvantaged children (Conley, 2001; Ellwood & Kane, 2000; Mare, 1981). Accordingly, measuring the association between parents' economic resources and children's educational attainment over time should provide a way gauge the United States' progress toward the ideal of equal educational opportunity. This study investigated changes in the role of parents' economic resources over time by comparing two cohorts of children from the Panel Study of Income Dynamics (PSID) data. Given that household wealth is not perfectly correlated with income (Wolff, 1990), we paid special attention parents' assets and used diverse measures of economic resources: income, net worth, liquid assets, and home ownership. BACKGROUND Recent decades have witnessed socioeconomic changes that may have affected educational opportunities. First, the cost of college education has risen rapidly, whereas financial aid has shifted more toward non-need-based aid (Kane, 2004). These changes are expected exacerbate the burden of low-income children in financing college education. Second, the value of a college education has increased continuously since the late 1970s, as reflected in growing earning gaps between workers with and without college degrees (Acemoglu, 2002). The increased value of education will heighten the impact of economic resources if parents with low resources are unable increase investment in their children's education. It is also plausible that it would motivate low-resource parents shift their resources toward children's education (Nam, 2004). Third, income and wealth inequalities have widened in the past few decades (Neckerman & Torche, 2007), and geographic concentration of wealth and poverty has intensified (Massey, 1996). Higher levels of income inequality may have contributed growing educational gaps, improving high-income children's educational outcomes while lowering those of low-income children (Mayer, 2001). …

Ferguson and Shockley (2003) demonstrate that by utilizing an equity-only proxy for the market index, an empirical single factor capital asset pricing model can lead to anomalies. As most extant studies, they show that information from firms' liabilities-equity structures, per se, leverage and distress, can improve factor pricing models. We show that information about asset structure, per se, firm's asset liquidity (i.e. cash holdings) and business risk, can be as important. We complement Ferguson and Shockley's (2003) leverage based-theory with a liquidity based-theory. We show that since by adding cash to the asset mix, a firm can substantially change the investment opportunity set, asset liquidity and business risk should affect asset prices. We first explore the pertinence of cash holdings theoretically. In our economy, the capital asset pricing model holds in theory. True betas are calculated with respect to aggregate wealth, and proxy betas might not take into account the cash holdings of the firms. We show that the true beta of the firm's assets is higher than a proxy beta of the firm's assets that 'forgets' the riskless assets of the economy. The true stock beta of a firm is also higher than the proxy stock beta that does not take into account the riskless assets held by the firms. By other words, systematic risk is underestimated when the economy's aggregate cash holdings are not recognized as a valuable asset. Our empirical analysis shows that asset liquidity and business risk are priced factors in an extended asset pricing framework of Fama and French. In the cross-section of firms, we regress the observed returns on the erroneous proxy betas and then show that the alpha and beta coefficient estimates from a one-factor model would be different from the CAPM pricing error and market price of risk, respectively. Furthermore, we also show that well-known pricing factors such as size, book-to-market, leverage, and distress could serve as instruments that capture asset liquidity (i.e. cash holdings) and business risk. We show that the asset liquidity or cash holdings and business risk have significant risk premiums. We also show that while our asset liquidity and business risk factors partly correlate with the Fama-French size and book-to-market factors, and the Ferguson-Shockley leverage and distress factors, they still represent uncaptured risk that significantly affects equity betas.

PurposeThe purpose of this paper is to provide new insights into asset liquidity in direct commercial real estate investment in the UK. Transaction data provided by four institutional investors of commercial real estate are used to test for changes in asset liquidity as manifest in recorded times from price agreement to deal completion. Median times to completion by stage of the transaction are presented alongside industry estimates.Design/methodology/approachStages of the transaction process are modelled and median times per stage calculated to track changes in asset liquidity over, and between, the two periods of the study (2000‐2002 and 2005‐2008). Real times to completion are considered in conjunction with estimated times compiled through interviews with senior level investment professionals. This paper applies the Wilcoxon rank‐sum test to determine the significance of variation in median times across the two study periods.FindingsThis paper provides empirical evidence that liquidity increased from 2000 to 2008. Median times from price agreement to completion decreased significantly (p=0.015) from 2000‐2002 to 2005‐2008, indicating an increase in asset liquidity in step with an overall increase in transaction volume. Furthermore, senior investment actors were found to persistently over‐estimate transaction efficiency and underestimate liquidity risk when acquiring and disposing of commercial properties.Research limitations/implicationsThis work offers new insights into the changing nature of asset liquidity over the last decade based on a limited number of transactions. Additional studies involving larger samples of transactions would provide still greater insight into commercial real estate liquidity dimensions.Practical implicationsThe paper presents evidence of pro‐cyclicality; asset liquidity varies positively with overall transaction volumes, and investment actors were found to overestimate asset liquidity suggesting a persistent underestimation of liquidity risk.Originality/valueThis paper addresses a gap in the extant literature offering real time on market‐time to completion observations alongside investor estimates. Median times to completion have been modelled and presented, together with time estimates provided by industry experts. Also, for first time in real estate research, median times to completion are shown to shorten significantly in‐line with increasing transaction volumes.

We study the effect of real asset liquidity on a firm's cost of capital. We find an aggregate asset-liquidity discount in firms' cost of capital that is strongly counter-cyclical. At the firm-level we find that asset liquidity affects firms' cost of capital both in the cross section and in the time series: Firms in industries with more liquid assets and during periods of high asset liquidity have lower cost of capital. This effect is stronger when the asset liquidity is provided by firms operating within the industry. We also find that higher asset liquidity reduces the cost of capital by more for firms that face more competitive risk in product markets, have less access to external capital or are closer to default, and for those facing negative demand shocks. Our results suggest that asset liquidity is valuable to firms and, more generally, that operating inflexibility is an economically important source of risk.

One of Keynes' core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more bounded rational approach to portfolio choice between liquidity and risky assets. The choice is made on the basis of individual beliefs which are subject to mental representations of the underlying economic structure. Self-consciousness arises when the agent is aware of the fact that beliefs are dispersed among agents due to the absence of a 'true'? model. Responding to this fact by increasing liquidity preference is rationalized by the higher ex post performance of choice. Moreover, we analyze the case that the portfolio is partially financed by debt. It is explored how fundamental uncertainty affects the volume of the portfolio and hence money and credit demand as well as the probability of debt failures.