Liquidity premium
MarketsDefinition
Extra return investors demand for holding less-liquid assets. Documented across asset classes: small-caps over large-caps, private equity over public, junk bonds over IG.
Estimated 1-3% per year for moderate-liquidity assets, higher for truly illiquid (private credit, real estate, lockup hedge funds). Earning the liquidity premium requires actually being able to hold through bad times — most retail investors mistime exits and surrender the premium.
Estimated 1-3% per year for moderate-liquidity assets, higher for truly illiquid (private credit, real estate, lockup hedge funds). Earning the liquidity premium requires actually being able to hold through bad times — most retail investors mistime exits and surrender the premium.