I have heard multiple times that a consistent definition of liquidity does not exist. The two
wikipedia articles describing liquidity (Market liquidity and accounting liquidity) lack a
discussion of this apparent problem within economics. Could someone perhaps provide a
reference to a discussion of the problem of defining liquidity and maybe provide a brief
summary of the issue?
Solution
Etymology and Introduction
As a concept to measure the interchangeability of assets and money, liquidity is a new word. It
first appears in 1923 in a use by Hawtrey (The Oxford English Dictionary (1989)). The
underlying idea however is much older. Menger (1892) calls a good more or less saleable
according to the facility to which it can be disposed of at current purchasing prices with less or
more diminution. He is talking about the origin of money, and not the disposition of financial
assets, but this concept of saleability is very much like the modern concept of liquidity. This
sense of saleability goes back at least as far as Jehan Palsgrave\'s usage in 1530 (The Oxford
English Dictionary (1989)). Although the absence of liquidity is now commonly referred to as
\"illiquidity\", Marschak (1938) offers \"frozen\" as an alternative that did not catch on.
Hicks (1962) says that the use of the word liquidity in a financial sense was popularized by
Keynes and the Macmillan Report in the 1930\'s (Macmillan Committee of HMSO (1931)). In
The General Theory, Keynes says that liquidity justifies money trading at a premium over bills
or bonds and causes the existence of an interest rate. Hicks teases from Keynes\' Treaty on
Money (Keynes (1930)) that one calls an asset more liquid than another if it is \"more certainly
realizable at short notice without loss.\"
This quote is more ambiguous than it may seem at first glance. Hicks offers several
interpretations. The first, which he flatly rejects, define liquidity as the difference between the
price the owner carries on his books for an asset and the price they could sell it for on the market.
The second, is an interpretation of marketability. Hicks defines a security as marketable if it is
sold just as well after negotiation, search and advertising as it is without it. That is, we can
compare the liquidity of two assets by the relative sacrifice one makes from a rapid sale. He
claims this interpretation is \"more appealing\" but still not what Keynes meant. He understands
Keynes\'s definition of liquidity to require perfect marketability, but even perfectly marketable
assets can be more or less liquid. The difference here is in the moments of the asset\'s price.
Among marketable financial assets, we can regard them as more or less liquid by using a utility
function to manage the trade-offs between maximizing the desirable odd moments (e.g., positive
mean and skew) and minimizing undesirable even moments (e.g., variance and leptokurtosis) of
asset returns.
Definitions of Liquidity
A treatment of market liquidity is crit.
Keynes’s Analysis of Capitalist DepressionsThroughout the remainTatianaMajor22
Keynes’s Analysis of Capitalist Depressions
Throughout the remainder of the General Theory, Keynes consistently assumed that the rate of utilization of the productive capacity of physical capital declined sharply in times of depression, and the number of employed workers declined sharply as well. Keynes’s theory was addressed to those obvious realities of depression in an insightful and coherent manner. But because it is an equally obvious fact of capitalist depressions that the real wages of workers did not increase when employment decreased, Keynes’s adherence to the marginal productivity theory that wages were always equal to the workers’ marginal productivity contradicted the rest of his theory.
As we have frequently pointed out in this book, the contradictions in a great thinker’s theory (and Keynes was a logician of the first order) give the best insights into the thinker’s ideological orientation. Keynes wished to furnish capitalist governments with theoretical insights that would help to save capitalism. In doing so, it was necessary for him to abandon some tenets of neoclassical theory. But, as we will see, he wanted to retain as much neoclassical ideology as possible. So he adhered to both the marginal productivity theory of distribution and the belief that the free market efficiently allocated resources (once full employment was attained), despite the fact that both these tenets of neoclassical ideology were logically tied to the belief that the free market automatically created a full employment, Pareto optimal situation. Even with theorists having the extraordinary logical ability of Keynes, ideology very frequently wins out over logic.
Keynes rejected the notion that if a capitalist economy started from a situation of full employment, then the rate of interest would automatically equate saving and investment and thus keep aggregate demand equal to aggregate supply. His major departures from the doctrines that comprised the neoclassical theory of automaticity were twofold: First, although he accepted the neoclassical notion that saving was influenced by the rate of interest, he insisted that the level of aggregate income was a far more important influence on the amount of saving than was the rate of interest. Second, he argued that saving and investment did not determine the rate of interest. The interest rate was a price that equalized the demand and supply of money—something quite different from (although not unrelated to) investment and saving.
These were very important departures indeed, because, although Keynes was unaware of it, they destroyed not only the neoclassical theory of the automaticity of the market but also the two other pillars of neoclassical ideology—the marginal productivity theory of distribution and the theory that a free, competitive market will result in a Pareto optimal allocation of resources. Keynes wanted to achieve the first result (the destruction of the belief in the automaticity of the market) but ...
How Commercial Real Estate Giants Can Put Tenants' Hard Earned Dollars At RiskGail Fischer
Fischer provides a hard-hitting analysis of the biases and conflicts of interest that prevail in today's new commercial real estate environment. The "Big 4" global commercial real estate firms increasingly represent both landlords and tenants. But they make most of their money from the owners, investors, developers and landlords. Tenants come last and as a result risk getting a bad deal. "It's a gamble for a company to put its corporate real estate portfolio in the hands of giant firms that serve multiple players and have much to gain by supporting the best deal for landlords rather than helping tenants minimize costs," Fischer said.
Liquidity Risk and Expected Stock Returns Lubos Pastor and Robert F- S.docxLucasmHKChapmant
Liquidity Risk and Expected Stock Returns Lubos Pastor and Robert F. Stambaugh NBER Working Paper No. 8462 September 2001 JEL No. G12 ABSTRACT This study investigates whether market-wide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. Over a 34-year period, the average retum on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5% annually, adjusted for exposures to the market return as well as size, value, and momentum factors. 1. Introduction In standard asset pricing theory, expected stock returns are related cross-sectionally to returns' senxitivities to state variables with pervasive effects on consumption and invertment opportunities. The basic intuition is that a security whose lowest returns tend to accompany unfavorable shifts in quantities afferting an imvestor's overall welfare must offer additional compensation to the investor for holding that security. Liquidity appears to be a good candidate for a priced state variable. It is often viewed as important for investment decisions, and recent studies find that fluctuations in various measures of liquidity are correlated acroos stocks." This empirical study investigates whether market-wide liquidity is indeed priced. That is, we ask whether cross-sectional differences in expected stock returns are rehated to the sensitivities of returns to fluctuations in aggregate liquidity. 2 Liquidity is a broad and elusive concept that generally denotes the ability to trade large quantities quickly, at low cost, and without moving the price. We focus on an aspect of liquidity associated with temporary price fluctuations induced by order flow. Our monthly aggregate liquidity measure is a cross-sectional average of individual-stock liquidity measures. Each stock's liquidity in a given month, etimated using that stock's within-month daily returns and volume, represents the average effect that a given volume on day d has on the return for day d + 1 , when the volume is given the same sign as the return on day d . The basic idea is that, if signed volume is viewed ronghly as "order flow," then lower liquidity is reflected in a greater tendency for order flow in a given direction on day d to be followed by a price change in the opposite direction on day d + 1 . Esentially, lower liquidity corresponds to stronger volume-related return reversals, and in this respect our liquidity measure follows the same line of reasoning as the model and empirical evidence presented by Campbell, Groseman, and Wang (1993). They find that sturns accompanied by high volume tend to be reversed more strongly, and they explain how this result i.
Keynes’s Analysis of Capitalist DepressionsThroughout the remainTatianaMajor22
Keynes’s Analysis of Capitalist Depressions
Throughout the remainder of the General Theory, Keynes consistently assumed that the rate of utilization of the productive capacity of physical capital declined sharply in times of depression, and the number of employed workers declined sharply as well. Keynes’s theory was addressed to those obvious realities of depression in an insightful and coherent manner. But because it is an equally obvious fact of capitalist depressions that the real wages of workers did not increase when employment decreased, Keynes’s adherence to the marginal productivity theory that wages were always equal to the workers’ marginal productivity contradicted the rest of his theory.
As we have frequently pointed out in this book, the contradictions in a great thinker’s theory (and Keynes was a logician of the first order) give the best insights into the thinker’s ideological orientation. Keynes wished to furnish capitalist governments with theoretical insights that would help to save capitalism. In doing so, it was necessary for him to abandon some tenets of neoclassical theory. But, as we will see, he wanted to retain as much neoclassical ideology as possible. So he adhered to both the marginal productivity theory of distribution and the belief that the free market efficiently allocated resources (once full employment was attained), despite the fact that both these tenets of neoclassical ideology were logically tied to the belief that the free market automatically created a full employment, Pareto optimal situation. Even with theorists having the extraordinary logical ability of Keynes, ideology very frequently wins out over logic.
Keynes rejected the notion that if a capitalist economy started from a situation of full employment, then the rate of interest would automatically equate saving and investment and thus keep aggregate demand equal to aggregate supply. His major departures from the doctrines that comprised the neoclassical theory of automaticity were twofold: First, although he accepted the neoclassical notion that saving was influenced by the rate of interest, he insisted that the level of aggregate income was a far more important influence on the amount of saving than was the rate of interest. Second, he argued that saving and investment did not determine the rate of interest. The interest rate was a price that equalized the demand and supply of money—something quite different from (although not unrelated to) investment and saving.
These were very important departures indeed, because, although Keynes was unaware of it, they destroyed not only the neoclassical theory of the automaticity of the market but also the two other pillars of neoclassical ideology—the marginal productivity theory of distribution and the theory that a free, competitive market will result in a Pareto optimal allocation of resources. Keynes wanted to achieve the first result (the destruction of the belief in the automaticity of the market) but ...
How Commercial Real Estate Giants Can Put Tenants' Hard Earned Dollars At RiskGail Fischer
Fischer provides a hard-hitting analysis of the biases and conflicts of interest that prevail in today's new commercial real estate environment. The "Big 4" global commercial real estate firms increasingly represent both landlords and tenants. But they make most of their money from the owners, investors, developers and landlords. Tenants come last and as a result risk getting a bad deal. "It's a gamble for a company to put its corporate real estate portfolio in the hands of giant firms that serve multiple players and have much to gain by supporting the best deal for landlords rather than helping tenants minimize costs," Fischer said.
Liquidity Risk and Expected Stock Returns Lubos Pastor and Robert F- S.docxLucasmHKChapmant
Liquidity Risk and Expected Stock Returns Lubos Pastor and Robert F. Stambaugh NBER Working Paper No. 8462 September 2001 JEL No. G12 ABSTRACT This study investigates whether market-wide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the principle that order flow induces greater return reversals when liquidity is lower. Over a 34-year period, the average retum on stocks with high sensitivities to liquidity exceeds that for stocks with low sensitivities by 7.5% annually, adjusted for exposures to the market return as well as size, value, and momentum factors. 1. Introduction In standard asset pricing theory, expected stock returns are related cross-sectionally to returns' senxitivities to state variables with pervasive effects on consumption and invertment opportunities. The basic intuition is that a security whose lowest returns tend to accompany unfavorable shifts in quantities afferting an imvestor's overall welfare must offer additional compensation to the investor for holding that security. Liquidity appears to be a good candidate for a priced state variable. It is often viewed as important for investment decisions, and recent studies find that fluctuations in various measures of liquidity are correlated acroos stocks." This empirical study investigates whether market-wide liquidity is indeed priced. That is, we ask whether cross-sectional differences in expected stock returns are rehated to the sensitivities of returns to fluctuations in aggregate liquidity. 2 Liquidity is a broad and elusive concept that generally denotes the ability to trade large quantities quickly, at low cost, and without moving the price. We focus on an aspect of liquidity associated with temporary price fluctuations induced by order flow. Our monthly aggregate liquidity measure is a cross-sectional average of individual-stock liquidity measures. Each stock's liquidity in a given month, etimated using that stock's within-month daily returns and volume, represents the average effect that a given volume on day d has on the return for day d + 1 , when the volume is given the same sign as the return on day d . The basic idea is that, if signed volume is viewed ronghly as "order flow," then lower liquidity is reflected in a greater tendency for order flow in a given direction on day d to be followed by a price change in the opposite direction on day d + 1 . Esentially, lower liquidity corresponds to stronger volume-related return reversals, and in this respect our liquidity measure follows the same line of reasoning as the model and empirical evidence presented by Campbell, Groseman, and Wang (1993). They find that sturns accompanied by high volume tend to be reversed more strongly, and they explain how this result i.
Liquidity of an asset has been defined as a degree where asset or security can be bought or sold in the securities market and this sale or purchase is done without harming the asset’s price. Liquidity has its own benefits such as investment in liquid assets than the illiquid ones. The liquid assets can be easily converted into cash which include the blue chip and money market securities. The ease and comfort with which financial instruments such as stocks and bonds are converted into ownership is the main essence of liquid assets (Burke, n.d.). Liquidity problems can arise due to the following business factors such as:
AACIMP 2010 Summer School lecture by Vasyl Gorbachuk. "Applied Mathematics" stream. "Financial Mathematics" course. Part 4.
More info at http://summerschool.ssa.org.ua
i need help with fractions like adding and subtracting fractions wit.pdfMadansilks
i need help with fractions like adding and subtracting fractions with unlike denominators
Solution
Let a/b and c/d be tho fractions to be added or subtracted. Deno. b & d are unlike.
Let us make b*d as common den. for two fractions.
So, a/b = (a*d)/(b*d) ......(1)
and c/d = (c*b)/(b*d)........(2)
For adding, we can now add numerators with common denominator
i.e. we get (a*d + c*b)/(b*d)
For example, we want to add 1/2 and 2/3
i.e. 1/2 +2/3
=> 3/6 +4/6
=>7/6
similar is subtraction.
1/2 - 2/3 = 3/6 - 4/6 = -1/6
Hope it is clear..
I need help with Applied Statistics and the SAS Programming Language.pdfMadansilks
I need help with Applied Statistics and the SAS Programming Language
Solution
Introduction :
All SAS jobs are a sequence of SAS steps, which are
made up of instructions, which are called SAS
statements. There are only two kinds of SAS steps:
DATA steps are used to read, edit, and transform data
(raw data or SAS data files), to prepare SAS data sets,
PROC steps are ready-to-use procedures which
analyze or process SAS data sets. In general, data
must be in a SAS data file before they can be
processed by SAS procedures.
Without going into the details at this time, here is a
skeletal example of a SAS job:
DATA STUDENTS;
INPUT NAME $ 1-14 SEX $ 15
SECTION $ 17-19 GRADE;
DATALINES;
. . . data lines . . .
;
PROC SORT DATA=STUDENTS;
BY SECTION DESCENDING GRADE;
PROC PRINT DATA=STUDENTS;
BY SECTION;
RUN
There are two kinds of SAS data sets: SAS data files (or tables), and SAS data views. A SAS
data file contains: the descriptor portion, which provides SAS procedures and some DATA step
statements with descriptive information (data set attributes and variable attributes) about the data
, and the data portion, a rectangular structure containing the data values, with rows (customarily
called observations), and columns (customarily called variables); and which is passed to most
procedures, observation by observation. A SAS catalog is a type of SAS file which stores many
different types of information used by the SAS System. All SAS files reside in a SAS data
library. The SAS System processes the program in two steps: (1) it compiles the program, and
(2) it executes the program. When the program is compiled, a program data vector (PDV) is
constructed for each DATA step. It is an area of memory which includes all variables which are
referenced either explicitly or implicitly in the DATA step. At execution time, the PDV is the
location where the current working values are stored as they are processed by the DATA step.
Variables are added to the PDV sequentially as they are encountered during parsing and
interpretation of SAS source statements. Each step (DATA or PROC) is compiled and executed
separately, in sequence. And at execution time within each DATA step, each observation is
processed iteratively through all of the SAS programming statements of the DATA step. SAS
procedures (PROCs) are programs that are designed to perform specific data processing and
analysis tasks on SAS data sets. Base/SAS procedures fall into the following categories: SAS
Utilities -- APPEND, CATALOG, CIMPORT, COMPARE, CONTENTS, COPY, CPORT,
DATASETS, DBCSTAB, DISPLAY, EXPLODE, EXPORT, FORMAT, FSLIST, IMPORT,
OPTIONS, PMENU, PRINTTO, RANK, REGISTRY, SORT, SQL, STANDARD,
TRANSPOSE, TRANTAB; Descriptive Statistics -- CORR, FREQ, MEANS, SQL,
SUMMARY, TABULATE, UNIVARIATE; Reporting -- CALENDAR, CHART, FORMS,
MEANS, PLOT, PRINT, REPORT, SQL, SUMMARY, TABULATE, TIMEPLOT.
Creating SAS Data Files Since SAS procedures can operate only on SAS data sets, then the first
step in processing any .
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Similar to I have heard multiple times that a consistent definition of liquidit.pdf
Liquidity of an asset has been defined as a degree where asset or security can be bought or sold in the securities market and this sale or purchase is done without harming the asset’s price. Liquidity has its own benefits such as investment in liquid assets than the illiquid ones. The liquid assets can be easily converted into cash which include the blue chip and money market securities. The ease and comfort with which financial instruments such as stocks and bonds are converted into ownership is the main essence of liquid assets (Burke, n.d.). Liquidity problems can arise due to the following business factors such as:
AACIMP 2010 Summer School lecture by Vasyl Gorbachuk. "Applied Mathematics" stream. "Financial Mathematics" course. Part 4.
More info at http://summerschool.ssa.org.ua
i need help with fractions like adding and subtracting fractions wit.pdfMadansilks
i need help with fractions like adding and subtracting fractions with unlike denominators
Solution
Let a/b and c/d be tho fractions to be added or subtracted. Deno. b & d are unlike.
Let us make b*d as common den. for two fractions.
So, a/b = (a*d)/(b*d) ......(1)
and c/d = (c*b)/(b*d)........(2)
For adding, we can now add numerators with common denominator
i.e. we get (a*d + c*b)/(b*d)
For example, we want to add 1/2 and 2/3
i.e. 1/2 +2/3
=> 3/6 +4/6
=>7/6
similar is subtraction.
1/2 - 2/3 = 3/6 - 4/6 = -1/6
Hope it is clear..
I need help with Applied Statistics and the SAS Programming Language.pdfMadansilks
I need help with Applied Statistics and the SAS Programming Language
Solution
Introduction :
All SAS jobs are a sequence of SAS steps, which are
made up of instructions, which are called SAS
statements. There are only two kinds of SAS steps:
DATA steps are used to read, edit, and transform data
(raw data or SAS data files), to prepare SAS data sets,
PROC steps are ready-to-use procedures which
analyze or process SAS data sets. In general, data
must be in a SAS data file before they can be
processed by SAS procedures.
Without going into the details at this time, here is a
skeletal example of a SAS job:
DATA STUDENTS;
INPUT NAME $ 1-14 SEX $ 15
SECTION $ 17-19 GRADE;
DATALINES;
. . . data lines . . .
;
PROC SORT DATA=STUDENTS;
BY SECTION DESCENDING GRADE;
PROC PRINT DATA=STUDENTS;
BY SECTION;
RUN
There are two kinds of SAS data sets: SAS data files (or tables), and SAS data views. A SAS
data file contains: the descriptor portion, which provides SAS procedures and some DATA step
statements with descriptive information (data set attributes and variable attributes) about the data
, and the data portion, a rectangular structure containing the data values, with rows (customarily
called observations), and columns (customarily called variables); and which is passed to most
procedures, observation by observation. A SAS catalog is a type of SAS file which stores many
different types of information used by the SAS System. All SAS files reside in a SAS data
library. The SAS System processes the program in two steps: (1) it compiles the program, and
(2) it executes the program. When the program is compiled, a program data vector (PDV) is
constructed for each DATA step. It is an area of memory which includes all variables which are
referenced either explicitly or implicitly in the DATA step. At execution time, the PDV is the
location where the current working values are stored as they are processed by the DATA step.
Variables are added to the PDV sequentially as they are encountered during parsing and
interpretation of SAS source statements. Each step (DATA or PROC) is compiled and executed
separately, in sequence. And at execution time within each DATA step, each observation is
processed iteratively through all of the SAS programming statements of the DATA step. SAS
procedures (PROCs) are programs that are designed to perform specific data processing and
analysis tasks on SAS data sets. Base/SAS procedures fall into the following categories: SAS
Utilities -- APPEND, CATALOG, CIMPORT, COMPARE, CONTENTS, COPY, CPORT,
DATASETS, DBCSTAB, DISPLAY, EXPLODE, EXPORT, FORMAT, FSLIST, IMPORT,
OPTIONS, PMENU, PRINTTO, RANK, REGISTRY, SORT, SQL, STANDARD,
TRANSPOSE, TRANTAB; Descriptive Statistics -- CORR, FREQ, MEANS, SQL,
SUMMARY, TABULATE, UNIVARIATE; Reporting -- CALENDAR, CHART, FORMS,
MEANS, PLOT, PRINT, REPORT, SQL, SUMMARY, TABULATE, TIMEPLOT.
Creating SAS Data Files Since SAS procedures can operate only on SAS data sets, then the first
step in processing any .
i need help with dividing fractionsSolution .pdfMadansilks
i need help with dividing fractions
Solution
Making up fractions with variables x, y, z, w, and u 1/(x+y) divided by 2z/(w+u) =
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and multiply the two fractions together..
I need help with Architecture Analysis Writing Assignment. It should.pdfMadansilks
I need help with Architecture Analysis Writing Assignment. It should be 3 paragraphs.
It is about University of Virginia designed by Thomas Jefferson.
I must write about Thomas Jefferson’s vision for the University of Virginia, describe the design
of the campus and types of buildings included in his plan, sources of inspiration, and his vision
for the academic community.
I must write it in three parts.
Part One: Description of the plan (one paragraph) A) Describe the characteristics of Jefferson’s
plan for the University of Virginia, including the types of buildings he included, and their
purposes. This should be presented in a written paragraph, NOT a bullet point list.
Part Two: Sources of inspiration (one paragraph) Briefly explain a) what individuals and b) what
other buildings or places contributed to Jefferson’s design.
Part Three: Jefferson’s Academic Village (one paragraph) Briefly explain how the overall design
of the university and the style of the buildings express Jefferson’s ideas about an “Academical
Village.”
Thanks in advance.
Any help would be appreciated. I want to make sure I write a quality paper and I really need help
with how to organize and write it out.
Solution
part one: The plan of the academical village, the first promoted to the university board parallel
rows and connected by colonnades around a central lawn. this plan was an extreme departure
from the classic American collegiates campus.A domed building based on sixteenth- century
Italian Andean palladio\'s drawings of the ancient roman pantheon. Heeding the two
architecture\'s advice jefferson placed the university library which he called the Rotunda,at the
head of composition.
part two: The design of the academical village reveals a successful application of jefferson\'s
multifeted architectural and personal interest to a collegiate setting. An innovative echo of french
hospital design and antique Roman temples, jefferson\'s university plan served as amodel for
subsequent college campus across country.when designing the university of virginia, jefferson
also incorporated his intrest in Roman architecture, each of the pavillion recalls structure
illustrated in palladio\'s FOUR BOOKS OF ARCHITECTURE and Rotunda at the head of the
village is in essence, aminiature pantheon.
part three: He wish to establish in the upper and healthier country and more centrally for the state
an university on aplan so board and liberal and modern as to be worth patronizing with the public
suppot and the temptation to the youth of other state to come and drink of the cupof knowledge
and faternize with us.These ideas found this way into jefferson\'s designs for his mountain top
residence of monticello,his retreat at poplar forest and later for his university. The notion of a
universityas village for instance possibly was inspired by jeffersons reading of treaties describing
how disciples noted Greek philosophers set up huts around their master\'s dwelling in a village
like compound..
i need help using please excuse my dear aunt sally. Can you give me .pdfMadansilks
i need help using please excuse my dear aunt sally. Can you give me some examples to do?
Solution
Please Excuse My Dear Aunt Sally
PEMDAS
Parentheses, Exponents, Multiplication and Division, Addition and Subtraction. The order in
which you do things when you are doing those operations.
Try the following:
3 + (4 + 5)2 * 12 - 4
4 - 32 + (4 + 2) + 4 * 3 - 2.
I need help on the Gerald and Moira Ryan 2014 tax return case.So.pdfMadansilks
I need help on the Gerald and Moira Ryan 2014 tax return case.
Solution
INDIVIDUAL PRACTICE SET #1
GERALD AND MOIRA RYAN
INDIVIDUAL FEDERAL INCOME TAX RETURN
2014 ANNUAL EDITION
ALL DATES RELATE TO YEAR 2014 UNLESS STATED OTHERWISE
1.0 INTRODUCTION:
You have been employed to complete the Federal income tax return of Gerald and Moira. Ryan
for 2014. The Ryans have provided you with original copies of all third party documents filed
with the IRS, such as W-2\'s, 1099\'s, and K-1\'s. They have also provided you with adequate
written documentation to substantiate all transactions mentioned in this case. Lastly, they
have.provided you with copies of their 2013 Federal and Kansas income tax returns.
1.1 Taxpayer Biographical Information:
Biographical data relating to the Ryans are as follows:
• Gerald Padraig Ryan, SSN 499-45-4939, Born March 17, 1953. Employed as a freight railroad
conductor by BNSF Corporation prior to his retirement on October 31.
• Moira Sullivan Ryan, SSN 455-49-9090. Born January 29, 1962. Sole owner and full-time
manager of Moira\'s Horticultural Creations, an unincorporated florist shop operating in Newton,
Kansas.
• They have been married for 24 years. They reside at 501 Main Street, Newton, Kansas 67114.
Their daytime telephone number is (316)555-1776.
1.2 Persons Supported by the Ryans:
The Ryans have the following single children:
• Michael John Ryan, SSN 455-40-1000. Born August 2, 1993. Full-time student at Creighton
University, Omaha, Nebraska before graduating in May. Matriculated as a full-time medical
student at St. Louis University in St. Louis, Missouri since August. Of his total support, the
Ryans provided 45 percent, Michael provided 40 percent and the balance came from other
sources. Michael\'s sole income consisted of wages and tips aggregating $3,800 earned as a
waiter. He lived with the Ryans during the summer months only.
• Kelly Marie Ryan, SSN 455-30-8220. Born June 2, 1995. Part-time student at Christendom
College in Fort Royal, Virginia. The Ryans provided 70 percent of her support. Her income
consisted solely of $8,000 earned from a part-time job as a computer analyst. She did not live
with the Ryans for any part of 2014.
• Oliver Plunkett Ryan, SSN 455-30-3030. Born December 12, 1999. Full-time student at St.
Michael\'s Catholic High School. The Ryans provided 100 percent of his support. He earned no
income. He lived with the Ryans throughout the entire year.
The Ryans also supported the following persons:
• Jane O\'Dea Sullivan, mother of Moira, SSN 252-45-5059. Widow. Born February 7, 1933.
Resided in Benson, Arizona prior to her death on November 3. The Ryans provided 65 percent of
her total support. Her sole income consisted of $1,100 of interest and dividends and $5,600 of
Social Security benefits.
• John Wilson Amner, cousin of Gerald, SSN 780-45-6700. Widower. Born January 19, 1954.
Resides in Arkansas City, Kansas. The Ryans provided 60 percent of his total support. His sole
income consisted.
I need help figuring this one out please parts AHow many adults .pdfMadansilks
I need help figuring this one out please parts A
How many adults must he survey in order to be 80% confident that his estimate is within 7
percentage point of the true population %?
A. Assume that nothing is known about the percentage of adults who have heard of the brand.
n=______?
Solution
alpha,a=0.20
Error,E = 0.07
p=0.50
Za/2 = Z0.10 = 1.28
n = [Za/2 / E]^2 * p(1-p)
n = 83.59
n=84.
I need a copy of the accounting cycleSolutionAccounting Cycle .pdfMadansilks
I need a copy of the accounting cycle
Solution
Accounting Cycle consists of the following steps:
1. Identification of Financial Transactions
2. Preparation of Vouchers
3. Recording Transaction & Events in the Books of Original Entry
4. Classifying or Posting to the Ledger
5. Summarising or Preparation of Trial Balance and Financial Statements
6. Analysis and Interpretation
7. Communicating the summarised data (financial statements) to the users.
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I must have the formula / calculation view from the spreadsheet to solve the questions. So
instead of just seeing that cell A25 is $XX.00, it should show the formula i.e. =A1*B2+A1.
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Rio Claro, Inc. (RCI) is in the business of transporting cargo between ports in California and
Washington. Its fleet includes a small dry-cargo vessel, theMaracas. The Maracas is 25 years old
and badly in need of an overhaul.
It is March 2016, and Michael John, the finance director, has just been presented with a proposal
that would require the one-time expenditures shown below in Table 1. If the proposal is
accepted, these expenditures will be made in the next few days. Mr. John believes that all these
outlays could be depreciated for tax purposes in the seven-year MACRS class (see Table 2 below
for rates). Overhaul of theMaracas will begin as soon as the expenditures in Table1 are made, but
the vessel will be out of service for several months. The overhauled vessel would resume
commercial service in one year. RCI’s chief engineer’s estimates of the post-overhaul operating
costs are in Table 3.
In addition to the overhaul described above, the chief engineer suggests installation of a brand-
new engine and control system. Installation of this new engine would cost an extra $600,000
(This additional outlay would also qualify for tax depreciation in the seven-year MACRS class.).
However, if the additional equipment is installed, it would result in reduced fuel, labor, and
maintenance costs as shown in Table 4.
The operating cost estimates in Tables 3 and 4 are current for March 2016. However, these costs
will increase with inflation, which is forecasted at 1.25% a year. Depreciation and operating
costs attributable to the overhaul of theMaracaswill begin one year after the vessel is put back
into commercial service. The revenues from operating the vessel will be the same for both types
of overhaul.
Even with the proposed overhaul, the Maracas cannot continue forever. After the overhaul, its
remaining useful life is estimated to be only 12 years. Its salvage value when finally taken out of
service will be trivial. Thus, Mr. John feels it is unwise to proceed without also considering the
purchase of a new vessel. Racette & Sons (R&S), a Colorado shipyard, has approached RCI with
a design incorporating a Kort nozzle, extensively automated navigation and power control
systems, and much more comfortable accommodations for the crew. R&S is offering the new
vessel for a fixed price of $3,000,000, payable half immediately and half on delivery in one year.
Estimated annual operating costs of the new vessel are in Table 5. The operating cost estimates
in the table are current for March 2016, but will increase with inflation.
The crew would require additional training to handle the new vessel’s more complex and
sophisticated equipment. Training would result in a one-time cost of $50,000 payable one year
following delivery of the new vessel. This cost is tax deductib.
I managed to do this in terms of polar coordinates. How would one so.pdfMadansilks
I managed to do this in terms of polar coordinates. How would one solve this using the fact that
T(z) = z^2? (2) Consider the map T: D D, where D is the unit disk in the plane, given by T(r cos
theta, r sin theta) = (r^2 cos 2theta,r2 sin 2theta), Using complex notation, z = x + iy, the map T
can be written as T(z) = z^2, Show that the Jacobian determinant of T vanish only at the origin.
Thus, away from the origin, T is locally one-to-one. However, show that T is not globally one-to-
one on 2 minus the origin.
Solution
T(z) = T(rcost, rsint)
Consider z^2 = (rcost, rsint).(rcost,rsint) = r^2cos^2t+r^2sin^2t
= r^2
= (x^2+y^2) where x =rcost and y =rsint
Thus T(z) = z^2
T(z) = z^2 =0 only when r=0 or at the origin.
As T(z) = z^2, T(-z) = (-z)^2 =z^2
Thus z and -z have the same image under T.
T is not one to one..
I know that real numbers consist of the natural or counting numbers,.pdfMadansilks
I know that real numbers consist of the natural or counting numbers, whole numbers, integers,
rational numbers and irrational numbers. But what about imaginary number i. And is it possible
that i can use an imaginary number for a real number.
Solution
There are two types of numbers 1.Real 2.Imaginary So we cannot use real as
imaginary because they belong to different categories..
I know how to calculate Dn... 7.758The answer is supposed to be Aj.pdfMadansilks
I know how to calculate Dn... 7.758
The answer is supposed to be Aj = 0.072 but I get 0.069
Is ni = 1.02E10 or is this where I am making my mistake?
Solution
your answer is correct. if you want to get exact value take Vt=.02585 and calculate Dn again..
I just need problem 3Find the the sum of the series12^4 + 14.pdfMadansilks
I just need problem 3:
Find the the sum of the series:
1/2^4 + 1/4^4+1/6^4+1/8^4 +......
Solution
if u have solved the first two questions then the third part is obtained by the difference of the two
expressions
implies
1/2^4 + 1/4^4+1/6^4+1/8^4 +...... =^4/90 -^4/96.
I hope i did all of that correctly.Can someone check my math o.pdfMadansilks
I hope i did all of that correctly.
Can someone check my math on the derivatives...and is there anyway to simplify them?
Now i must show that the population P reaches half the limiting population M, when P\'\'=0 [ie
when P\'\'=0 P=M/2]
what should i do here?
Solution
You could have tried it in another way.
1/P = (1/M) + ((1/P0) - (1/M)) eMR(t0-t)
Now differentiating it woul;d be easier.
I hope someone can help me , I need to write a ten page paper on Pro.pdfMadansilks
I hope someone can help me , I need to write a ten page paper on Probability by 215-2012. Is
there any out there that can help me with this problem?
Solution
Probability is ordinarily used to describe an attitude of mind towards some
proposition of whose truth we are not certain.[1] The proposition of interest is usually of the
form \"Will a specific event occur?\" The attitude of mind is of the form \"How certain are we
that the event will occur?\" The certainty we adopt can be described in terms of a numerical
measure and this number, between 0 and 1, we call probability.[2] The higher the probability of
an event, the more certain we are that the event will occur. Thus, probability in an applied sense
is a measure of the likeliness that a (random) event will occur. The concept has been given an
axiomatic mathematical derivation in probability theory, which is used widely in such areas of
study as mathematics, statistics, finance, gambling, science, artificial intelligence/machine
learning and philosophy to, for example, draw inferences about the likeliness of events.
Probability is used to describe the underlying mechanics and regularities of complex systems.
The word probability does not have a singular direct definition for practical application. In fact,
there are several broad categories of probability interpretations, whose adherents possess
different (and sometimes conflicting) views about the fundamental nature of probability. For
example: Frequentists talk about probabilities only when dealing with experiments that are
random and well-defined. The probability of a random event denotes the relative frequency of
occurrence of an experiment\'s outcome, when repeating the experiment. Frequentists consider
probability to be the relative frequency \"in the long run\" of outcomes.[3] Subjectivists assign
numbers per subjective probability, i.e., as a degree of belief.[4] Bayesians include expert
knowledge as well as experimental data to produce probabilities. The expert knowledge is
represented by a prior probability distribution. The data is incorporated in a likelihood function.
The product of the prior and the likelihood, normalized, results in a posterior probability
distribution that incorporates all the information known to date. The scientific study of
probability is a modern development. Gambling shows that there has been an interest in
quantifying the ideas of probability for millennia, but exact mathematical descriptions arose
much later. There are reasons of course, for the slow development of the mathematics of
probability. Whereas games of chance provided the impetus for the mathematical study of
probability, fundamental issues are still obscured by the superstitions of gamblers.[8] According
to Richard Jeffrey, \"Before the middle of the seventeenth century, the term \'probable\' (Latin
probabilis) meant approvable, and was applied in that sense, univocally, to opinion and to action.
A probable action or opinion was one such .
I have to do a project..no one stops at the sign in front of my hous.pdfMadansilks
I have to do a project..no one stops at the sign in front of my house-but since defining a stop is
too difficult, I am using whether or not the drivers use the brake or not. You would be surprised
how many don\'t even brake at all. How do I get started with this? Choose random times and
days to observe the stop sign? Can you just point me in the right direction? Thanks :) Statistics
and Probability Comment
Solution
Why do you say that Project Management is the best method of implementing
change? Although change occurs continuously in the world and in our daily lives it is rarely
implemented that way in organisations but rather as a series of steps; a ladder of change. A new
piece of legislation, market imperatives, management initiatives and new technology create
projects that need to be managed, often across departmental or disciplinary lines. Project
Management is a methodology and a discipline which can bring significant benefits to
organisations by:- Ensuring limited resources are used on the right projects Harnessing the
energy of staff in achieving beneficial change Managing complex changes in an organised way
Assessing risks, defining goals and key success areas and setting quality objectives. However,
every organisation has finite resources and, therefore, a limit to the number of projects it can
initiate and control. Pushing too many projects through a resource limited organisation causes
gridlock and stress. Managing the project portfolio efficiently is a fundamental principle of good
project management. Because most projects involve new ideas and learning (even a project to
build houses or flats may involve new materials or unusual soil conditions or there may be new
initiative for tenant selection or co-ownership schemes) project management has evolved a
discipline to manage the new and unusual. Its objective is to: define the project reduce it to a set
of manageable tasks obtain appropriate and necessary resources build a team or teams to perform
the project work plan the work and allocate the resources to the tasks monitor and control the
work report progress to senior management and/or the project sponsor close down the project
when completed review it to ensure the lessons are learnt and widely understood. It is this
structured approach that makes project management the best method for change management.
What is a project? A project is generally defined as a programme of work to bring about a
beneficial change and which has:- a start and an end a multi-disciplinary team brought together
for the project constraints of cost, time and quality a scope of work that is unique and involves
uncertainty Examples of a project:- The development and introduction of a new services The
development of a management information system The introduction of an improvement to an
existing process Setting up a new care initiative The creation of a large tender or the preparation
of a response to it. The production of a new customer newsletter, catal.
I have only 1 attempt. Please make sure answers are correct.Answ.pdfMadansilks
I have only 1 attempt. Please make sure answers are correct.
Answer choices for blanks are in BLUE BOXES, answers are seperated by a slash mark (/).
Solution
1)passes
2) 0
3)neither two lines fit data well
4)between 10 and 14.
I have no idea how to start this problem or how to format in Excel...pdfMadansilks
I have no idea how to start this problem or how to format in Excel...help!!
Solution
There are a variety of formatting options available in Excel - conditional formatting, number
formatting, text and general spreadsheet formatting techniques. With so many choices it is easy
to get lost or miss some options altogether. Here you will find free step by step tutorials, how
to\'s, general information, tips and shortcuts to help you format your spreadsheets effectively.
Excel 2007 Negative Number FormatThis tutorial covers how to format a negative number in
Excel 2007. The tutorial includes a step by step example of how to format a negative number in
Excel 2007.
Excel 2007 AutoFormatExcel 2007\'s Autoformat option gives you 17 styles to use to give your
spreadsheets a professional look. Instructions on how to apply an autoformat style are included.
Customize the Quick Access Toolbar in Excel 2007
The Quick Access Toolbar is used to store shortcuts to frequently used features in Excel. This
tutorial shows you how to add the autoformat button to the Quick Access Toolbar.
Formatting your Excel spreadsheets makes them easier to read and understand the important
information. This series of Excel articles and tutorials, takes you through the process of
formatting your Excel spreadsheets.
Basic Formatting in Excel - Tutorial Part 1Excel offers a variety of formatting options including
number, text, and worksheet formatting. This is the first part of a step by step tutorial, using
these types of formatting effectively to enhance your spreadsheets.
Basic Formatting in Excel - Tutorial Part 2Excel offers a variety of formatting options including
number, text, and worksheet formatting. This second part of a step by step tutorial, covers using
these types of formatting effectively to enhance your spreadsheets.
Add and Delete Columns and Rows in ExcelThis series of articles cover the basics of how to
add and delete columns and rows in Excel worksheets. It is often necessary to alter the layout of
a worksheet due to the addtion or removal of data.
Hide and Unhide Columns and Rows in ExcelThis series of articles cover how to hide and
unhide columns and rows in Excel worksheets.
Find Duplicates in Excel 2007 with Conditional FormattingThis article shows you how find a
variety of duplicate data - formulas, numbers, dates, data records - in Excel 2007 using
conditional formatting. The article includes an example of using conditional formatting in Excel
2007 to find duplicates.
Excel 2007 Conditional Formatting for DatesThis article shows you how apply conditional
formatting to cells in Excel 2007. The article includes an example of using conditional
formatting in Excel 2007.
Finding Above Average Values with Conditional FormattingThis article shows you how apply
conditional formatting to cells in Excel 2007. The article includes an example of using
conditional formatting in Excel 2007.
Finding Below Average Values with Conditional FormattingThis article shows you ho.
I have the book Business Driven Information Systems, 4th edition. I .pdfMadansilks
I have the book Business Driven Information Systems, 4th edition. I need help with Chapter 3:
Project II: wiki your way.
Wikis are web-based tools that make it easy for users to add, remove, and change online content.
employees at companies such as Intel, Motorola, IBM, and Sony use them for a host of task,
from setting internal meeting agendas to posting documents related to new products.
Many companies rely on wikis to engage customers in ongoing discussions about products.
wikis ABC and CBS, created fan wikis that let viewers interact with each other as they unraveled
mysteries from such shows as Lost and CSI: Crime Scene Investigation. You would like to
implement wikis at your new company, The Consulting Edge, a small computer consulting
company catering to mid- and large-sized businesses. Answer the following questions:
*How can a wiki help you attract customers and grow your business?
*HOw can a wiki help your partners and employees?
*What ethical and security concerns would you have with the wiki?
*What could you do to minimize these concerns?
Solution
1.
2.
A wiki is a Web site that enables users to collect team knowledge, plan events, or work on
projects together. People can easily add new content or edit existing content. Wikis continue to
evolve as people add and revise information. Although a version history is collected, and the
history is organized in chronological order, the versions aren\'t displayed in journal style in the
default view of a wiki.Your team may want to use a wiki to build a collective body of knowledge
or to facilitate planning, such as for a team project, a publication, or a conference.For example, a
company marketing team uses a wiki to help newly hired staff members get started quickly. As
team members run across additional resources or have additional advice to relay, they add the
links and information.
Five tools that can help your partner and employees.
I have been assigned to take the data and arrange it in the order I .pdfMadansilks
I have been assigned to take the data and arrange it in the order I collected it
(11,12,12,9,8.5,9.5,8.5,11,10,9,16,12,10,12,14). Count the total number of observations you
have, and label this number N. Then create another set of data starting from one and increasing
by one until you reach N (1,2,3,4,5,6,7,8,9,10,11,12,13,14,15). This set of data is called a time
series. Runa regression using the original set of data as the dependent variable, and your time
series as an independent variable. What are the results and any conclusions that can be reached
by the results?
Solution
total number of observations(N):15 dependent
variabl(x)=11,12,12,9,8.5,9.5,8.5,11,10,9,16,12,10,12,14 independent
variable(y)=1,2,3,4,5,6,7,8,9,10,11,12,13,14,15 The equation for a straight line is usually written
as: Y = bX + a where b = slope of the line = (Y2 - Y1) / (X2 - X1) = “the rise” divided by “the
run” and a = the Y-intercept = the value of Y when X = 0 Y=X+165.5.
Unit 8 - Information and Communication Technology (Paper I).pdfThiyagu K
This slides describes the basic concepts of ICT, basics of Email, Emerging Technology and Digital Initiatives in Education. This presentations aligns with the UGC Paper I syllabus.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Safalta Digital marketing institute in Noida, provide complete applications that encompass a huge range of virtual advertising and marketing additives, which includes search engine optimization, virtual communication advertising, pay-per-click on marketing, content material advertising, internet analytics, and greater. These university courses are designed for students who possess a comprehensive understanding of virtual marketing strategies and attributes.Safalta Digital Marketing Institute in Noida is a first choice for young individuals or students who are looking to start their careers in the field of digital advertising. The institute gives specialized courses designed and certification.
for beginners, providing thorough training in areas such as SEO, digital communication marketing, and PPC training in Noida. After finishing the program, students receive the certifications recognised by top different universitie, setting a strong foundation for a successful career in digital marketing.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
I have heard multiple times that a consistent definition of liquidit.pdf
1. I have heard multiple times that a consistent definition of liquidity does not exist. The two
wikipedia articles describing liquidity (Market liquidity and accounting liquidity) lack a
discussion of this apparent problem within economics. Could someone perhaps provide a
reference to a discussion of the problem of defining liquidity and maybe provide a brief
summary of the issue?
Solution
Etymology and Introduction
As a concept to measure the interchangeability of assets and money, liquidity is a new word. It
first appears in 1923 in a use by Hawtrey (The Oxford English Dictionary (1989)). The
underlying idea however is much older. Menger (1892) calls a good more or less saleable
according to the facility to which it can be disposed of at current purchasing prices with less or
more diminution. He is talking about the origin of money, and not the disposition of financial
assets, but this concept of saleability is very much like the modern concept of liquidity. This
sense of saleability goes back at least as far as Jehan Palsgrave's usage in 1530 (The Oxford
English Dictionary (1989)). Although the absence of liquidity is now commonly referred to as
"illiquidity", Marschak (1938) offers "frozen" as an alternative that did not catch on.
Hicks (1962) says that the use of the word liquidity in a financial sense was popularized by
Keynes and the Macmillan Report in the 1930's (Macmillan Committee of HMSO (1931)). In
The General Theory, Keynes says that liquidity justifies money trading at a premium over bills
or bonds and causes the existence of an interest rate. Hicks teases from Keynes' Treaty on
Money (Keynes (1930)) that one calls an asset more liquid than another if it is "more certainly
realizable at short notice without loss."
This quote is more ambiguous than it may seem at first glance. Hicks offers several
interpretations. The first, which he flatly rejects, define liquidity as the difference between the
price the owner carries on his books for an asset and the price they could sell it for on the market.
The second, is an interpretation of marketability. Hicks defines a security as marketable if it is
sold just as well after negotiation, search and advertising as it is without it. That is, we can
compare the liquidity of two assets by the relative sacrifice one makes from a rapid sale. He
claims this interpretation is "more appealing" but still not what Keynes meant. He understands
Keynes's definition of liquidity to require perfect marketability, but even perfectly marketable
assets can be more or less liquid. The difference here is in the moments of the asset's price.
Among marketable financial assets, we can regard them as more or less liquid by using a utility
function to manage the trade-offs between maximizing the desirable odd moments (e.g., positive
2. mean and skew) and minimizing undesirable even moments (e.g., variance and leptokurtosis) of
asset returns.
Definitions of Liquidity
A treatment of market liquidity is critical if we are to realistically model the behavior of markets
of financial assets that are traded with transaction costs. The liquidity literature primarily follows
three meanings of liquidity. The first and oldest class of measures of liquidity relate the size of
loss to the amount of notice. That is, what is the fraction of the best possible price that a seller
can net as a function of time allotted to conduct a loss minimizing sale? Keynes's definition is a
specific example where he is interested only in short notice. For example, compare trying to sell
a round lot (100 shares) of IBM stock today with doing the same with a home. The IBM shares
will sell without diminution. The home will sell at an enormous discount because of product
heterogeneity, heterogeneous buyers, and the skipping of time consuming risk avoidance
techniques (e.g., title search and property inspection). A classic statement of this sense of
liquidity comes from Hirshleifer (1968). He calls liquidity "as asset's capability over time of
being realized in the form of funds available for immediate consumption or reinvestment --
proximately in the form of money." Admati and Pfleiderer (1988) also care about liquidity in
this first sense. They see exogenous liquidity events (say a change in margin requirements)
causing a "demand for immediacy" (a term also found in Grossman and Miller (1988)), that is,
the willingness to sell rather than wait when doing so costs the seller. According to Greenbaum
(1971), who called this the L1 definition of liquidity, the earliest work on this sense of liquidity
was in Tobin's unpublished manuscript. Pierce (1966) elaborates this notion and explores this
measure in the context of commercial bank portfolio management.
The second meaning understands liquidity as the expected time to sale without diminution.
Returning again to the example of selling the lot of IBM stock and a home, the expected time to
getting the best price on your shares of IBM is almost zero (at least during business hours and
with access to a computer or phone) whereas, on average, the home would take a few months to
sell optimally. Lippman and McCall (1986) explore this sense of liquidity. They take an agent as
choosing a stopping rule ???T of all possible stopping rules to maximize expected net receipts
(under that stopping rule) of E[R(??)]. They define liquidity as E[??], the expected time to sale
under the optimal stopping rule. Krainer and LeRoy (2002) also suggest this expected time to
sale under an optimal selling rule a measure of liquidity.
The third definition of liquidity involves the uncertainty of an asset's value. As discussed above,
Hicks (1962) sees this as the critical attribute of liquid assets. Proponents of this definition argue
that it is of little importance if you can sell an asset on short notice and with small loss if the
asset itself is worth little when you need it. That is reasonable as long as investors are risk averse.
Tobin (1958) introduces this sense of liquidity in a framework of risk averse investors and
3. uncertainty of future interest rates. Tobin's paper resolved the paradox (to economists) that
consoles (perpetual bonds) have higher expected rates of return than cash investments. Lagos
(2008) is able to explain much of the risk-free-rate and equity-premium puzzles in an economy
with riskless, liquid assets and risky, illiquid ones when agents hold assets for the liquidity
services.
Deaton (1991) equates a model's liquidity constraints with limitations on borrowing future
income. In that sense, liquid assets are more effective in moving income though time.
Holmstrom and Tirole (1998) also explore this meaning of liquidity as a way of storing wealth
between periods in search of recommendations for efficient market making of financial assets
and optimal provision of liquidity services by the government. Hovakimian, Opler, and Titman
(2001) continue to explore this inter-temporal liquidity concept in economies with human capital
that creditors cannot seize or make claims upon. He experiments with two an extra features,
either no short selling of physical capital or limited borrowing by agents.
The concept of liquidity is a mixture of the attributes of liquidity discussed above. Households
without liquid assets want to borrow with their illiquid assets as collateral. They cannot do so.
Creditors are unwilling to lend because in the event of default, lenders will have to sell collateral
with serious discount from the true value, with long waiting times for finding a good selling
price, or with unfavorable co-movement (e.g., covariance or other forms of joint distribution)
with other asset holdings. This idea of liquidity as having wealth when you need it is similar to
the CAPM insight of weighting future returns by the marginal utility. Krainer and LeRoy (2002)
argue that the CAPM holds for illiquid assets as well as liquid ones, but that observing the
relevant shadow prices is difficult. However, the ambiguity of asset values in the presence of
illiquidity (explored later) ensures that these shadow prices will not be unique. The general idea
is that illiquidity can drive a a wedge between the discounted expected risk adjusted returns and
the price for which you can sell an asset. As such, the traditional CAPM model is not entirely
appropriate. An area for future investigation is expanding the CAPM to make this distinction.
Holmstrom and Tirole (2001) was one attempt to so, but focused on firm decisions and not
investor valuations.
Can the Alternative Definitions of Liquidity be Reconciled?
Here is an example of the wedge between expected returns and price that also highlights that an
asset can be liquid in one sense and yet is illiquid in another. Imagine an investor with a US
Treasury bond with a 14% coupon in a market where newly issued bonds have a coupon of 7%.
Selling these highly appreciated bonds (which traded far above par) would require paying
significant capital gains taxes, while holding them involves minimal credit risk and the interest
would be state and local tax exempt. Therefore, to sell would be expensive for the owner and
therefore illiquid in sense 1. Nevertheless, these securities could surely be sold rapidly though
4. the secondary US Treasury Bond market and there would be little benefit to waiting and
therefore highly liquid in sense 2. It is certainly the case that assets that are liquid in one sense
are often liquid in the others too. But as this example shows, that need not be so.
Therefore we cannot collapse these three definitions into a single numerical measure of liquidity
capturing all the desired attributes. Even if we could, Hicks (1962) and Admati and Pfleiderer
(1988) have concluded that liquidity is an ordinal property. Marschak (1938) suggests measuring
the distinct properties of liquidity separately. Pierce (1966) disagrees that such an ordering is
possible, at least with respect to sense 1 of liquidity. He says that "apart from those assets that
are perfectly liquid and those for which sale prior to maturity is impossible, assets cannot be
uniquely ranked by degrees of liquidity." His example is an asset A that is easy to sell well with
short searches (but no better after long ones) and an asset B that sells more poorly than A for
short searches and better than A for long ones. Pierce also notes (in describing the weakness of
his notion of liquidity) that "the price per unit often depends on the number of units sold." This
allows for another example of the crossing behavior, where one asset may be more liquid at
small quantities but less liquid for large ones.
Admati and Pfleiderer (1988) argue that liquidity of the third type actually encourages liquidity
of the first type. They argue that commodities with successful futures markets have demand for
immediacy because price volatility and risks of delaying sales are large (illiquid in sense 3). Such
markets also help spread the fixed costs of market making (waiting around for buyers and sellers
to want to trade, as well as infrastructure) across a large number of market participants. In
contrast, home sellers are less concerned with short-term price volatility and instead prefer an
extended search for potential buyers.
Alternative Definitions
Krainer and LeRoy (2002) argue that liquidity is a feature of markets and not of assets. They
offer as a first example that a Ford automotive factory is illiquid but Ford stock is liquid. A
second example is a pool of mortgages which is more illiquid than than the underlying
mortgages. However, perhaps it suffices to refer to an asset's liquidity as its liquidity in the most
liquid market an agent can trade it in. Tobin calls reversibility "the value of the asset to its
holder expressed as a percentage of is contemporaneous cost to the buyer" (Tobin and Golub
(1998)). Hahn (1990) sees asset liquidity as being closely related "to the cost reversing a
decision taken earlier." His example is that for economic agents, the cost of selling an asset in
period 2 will factor into the decision to invest in it in period 1. This meaning of reversibility is a
mixture of sense 1 and sense 2 of liquidity. If waiting for suitable trading opportunities is the
expensive part of reversing a trade then reversibility is primarily the second sense of liquidity.
However, if transaction costs are the expensive part of reversal then the first sense of liquidity
will be the relevant one. Marschak (1938) develops a concept of plasticity that is essentially this
5. concept of reversibility. He considers plasticity as a more general concept than saleability that
includes flexibility. Greenbaum (1971) is an early reference that notes the interrelatedness of
reversibility and liquidity.
Jones and Ostroy (1984) see an essential attribute of liquidity in the related measure of
flexibility. Financial investments that leave agents with a larger set of intermediate and final
choices are more flexible. Lippman and McCall (1986) are similarly interested in liquidity as
flexibility. They show in a simple search model that if the investor opportunity set changes over
time, even risk neutral investors will demand a more liquid asset because it improves the
expected returns of their portfolio. Hahn (1990) also sees liquidity as tied to the "speed of
response to new information," but it is hard to see if this is a cause of liquidity or caused by it.
Intuition suggests the former. Few market participants, high transaction costs and other direct
causes of illiquid markets all make it more difficult to trade on new information. Further, the
trees model of Lucas (1978) shows that prices can move even in the absence of trade. Frequent
trade is not synonymous with liquidity.
The frequency of order arrival is a determining factor of liquidity in markets with market makers.
This implies that markets need not be liquid to have fast adjusting prices. Flexibility can be about
more than investment opportunities. If agents are borrowing constrained and goods can be
purchased only with liquid assets, then agents must hold some liquid assets to purchase goods for
immediate consumption, even though doing so does not maximize their portfolio return. If
consumption opportunities vary over time then agents will hold relatively more ready assets to
take advantage of fleeting consumption opportunities. If agents were not so constrained, then
they could simply borrow against their illiquid assets (repaying debts as the returns arrived or
when prudent sale was possible) to consume as they like. This is also true for investment
flexibility. If investors could borrow against their illiquid assets then they would not need liquid
holdings to take advantage of future investment opportunities. The necessity of holding liquid
assets for consumption purposes is one motivation for the money-in-the- utility function (MIU)
literature. The MIU framework puts money, an asset without consumption value nor any
investment return, into the utility function as a reduced form representation of all the ways that
money (as the most liquid asset) makes consumption easier and more efficient.