On Raddom Preferences, Future Flexibility and the Demand for Illiquid Assets (Revised)

Clive Fraser ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Goldman's model of flexibility and portfolio choice with random preferences is extended to the case of two assets alternative to money. The asset highest yielding to maturity, but least flexible, is ex ante divisible but ex post indivisible. This asset is always chosen alongside money initially, irrespective of whether or not it is redeemable prematurely. When it is not so redeemable, transparent restrictions on asset prices are found to ensure that the other non-money asset is also held initially, and with a positive probability of premature redemption. When it is premturely redeemable, these same restrictions ensure positive probability of this occuring.

Pages: 38 pages
Date: 1980
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:181

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