liquidity preference model? (1 Viewer)

mmmm.

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Could someone please explain the theory of liquidity preference/liquidity preference model? I have searched it up and still don't understand it completely
 

jimmysmith560

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Liquidity Preference Theory is a model that suggests that an investor should demand a higher interest rate or premium on securities with long-term maturities that carry greater risk because, all other factors being equal, investors prefer cash or other highly liquid holdings.

I don't major in Economics, but I believe that this theory refers to an investor wanting higher returns with respect to long-term investments because they obviously carry greater risk on their investment. Investors prefer cash and highly liquid holdings because those are short-term and their risk is lower than those with long-term maturities.
 

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