The Liquidity Theory of Asset Prices [Hardcover]

Professional investors are bombarded on a day to day basis with assertions about the role liquidity is playing and will play in determining prices in the financial markets. Few, if any, of the providers or recipients of such advice can truly claim to understand the well–springs of such liquidity and the transmission mechanisms through which it impacts asset prices.

This groundbreaking new book explores the belief that at the core of liquidity there is a force which exerts individuals to effect a financial transaction when they would not otherwise do so.  Understanding this force of compulsion is a key to understanding a financial market when it appears to be behaving irrationally. This book will enable new and seasoned investors to develop an understanding of the factors, so that costly mistakes can be avoided without the lesson of experience.

Foreword by Russell Napier xiii

Acknowledgements xvii

About the Authors xix

List of Tables, Figures and Charts xxiii

Introduction 1

Appetiser 1

Structure of the book 2

Language and jargon 2

Academic theories 3

Modern Portfolio Theory 3

The Efficient Markets Hypothesis 4

Forms of investment analysis 4

Fundamental analysis 4

Monetary analysis 5

Technical analysis 5

The intuitive approach 6

What the book is going to say 6

PART I THE LIQUIDITY THEORY 9

1 Types of Trades in Securities 11

2 Persistent Liquidity Trades 15

3 Extrapolative Expectations 21

4 Discounting Liquidity Transactions 25

5 Cyclical Changes Associated with Business CycllóO