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Suppose financial innovation leads to an increase in junk bond trading, so junk bonds become more liquid. An investor makes the following remark: I don't
Suppose financial innovation leads to an increase in junk bond trading, so junk bonds become more liquid.
An investor makes the following remark: "I don't understand the junk bond market. Junk bonds have become more liquid. This should have made them more desirable and increased the demand for them. The increased demand should have driven their yields up, but in fact their yields have gone down. I guess investors just don't value liquidity." Do you agree with the investor's reasoning?
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