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.