What belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of?
The belief that investors require a higher return to entice them into holding long-term securities is known as the "liquidity preference theory." This theory is a viewpoint within the field of finance and economics and explains the relationship between the maturity of securities and the required rate of return by investors.
To get a better understanding of the liquidity preference theory, you can follow these steps:
1. Start by researching and reading about the concept of liquidity preference theory. Look for reputable sources such as finance textbooks, academic papers, or articles from trusted finance and economics publications.
2. Understand that liquidity preference theory suggests that investors generally prefer to hold more liquid assets, such as cash or short-term securities, as they provide flexibility and quick access to funds. Consequently, investors require a higher return to be willing to hold long-term securities because they are less liquid and involve a longer commitment of funds.
3. Explore the historical context and development of the liquidity preference theory. Learn about its originators, such as John Maynard Keynes, who proposed this theory as a part of his broader framework of macroeconomic analysis.
4. Examine the key factors influencing liquidity preference, such as uncertainty and future expectations, risk aversion, and the role of monetary policy. Understanding these factors will give you a comprehensive view of why investors demand a higher return for long-term securities.
5. Connect the liquidity preference theory to real-life examples and scenarios. This could include situations where interest rates, investor sentiments, or policy changes influence the demand for long-term securities. This will help you see the practical application of the theory.
By following these steps, you can gain a deeper understanding of the liquidity preference theory and the viewpoint that investors require a higher return to hold long-term securities.