Liquidity period: Difference between revisions

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Revision as of 19:48, 10 December 2016

Of an investment, the shortest period which you are stuck with it. In the liquidity period you are at risk to your asset cratering into a sulfurous hole in the ground, so it is an issue that should exercise an investor’s mind far more than, in most cases, it does.

For an equity, you can sell it at any time, so the liquidity period is close to nil. A hedge fund may only accept subscriptions and redemptions every three months (or more).

There are practical limitations, too: You can, in theory, sell your house at any time, but in practice it will take you three to six months to actually shift it from the moment you decided to. Even an equity may suddenly lose liquidity, if everything it going to shit. See Enron.