Background
Marketable securities are liquid financial instruments that can be quickly converted into cash at a reasonable price. These securities are actively traded and hence have highly reliable and consistent price evaluations.
Historical Context
The concept of marketable securities has its early roots in the growth of financial markets, allowing businesses and governments to raise capital. The development of stock exchanges and bond markets provided a platform where these securities could be traded, improving liquidity and pricing mechanisms.
Definitions and Concepts
A marketable security is a type of asset that can be easily sold or exchanged for cash within a short period, typically has a ready secondary market, and can be quickly liquidated. Examples include common stock and corporate bonds.
This is contrasted with non-marketable securities, like *National Savings in the UK, which cannot be sold or transferred and must be converted back to cash by selling them back to the issuer. Mortgages, which are normally non-marketable on an individual basis, can be converted into marketable securities via the process of *securitization, combining several mortgages into packages for sale in the secondary market.
Major Analytical Frameworks
Classical Economics
Classical economists primarily focused on real assets rather than financial securities. However, they acknowledged the role of capital markets in facilitating investments.
Neoclassical Economics
Neoclassical economics emphasizes the efficiency of markets, including the tradeability and liquidity of marketable securities, as enhancing overall economic efficiency by allowing smooth reallocation of resources.
Keynesian Economics
Keynesians stress the role of liquidity preference and financial markets in influencing economic outcomes. Marketable securities contribute to overall liquidity, impacting investment and consumption behavior.
Marxian Economics
Marxian analysis focuses on the contradictions of capitalist systems, including financial markets. While real assets and direct investment are more central, financial instruments like marketable securities are considered a part of capitalist financial systems’ dynamics.
Institutional Economics
Institutional economics examines the role of institutions and regulatory frameworks in shaping securities markets. The ease of trading marketable securities depends heavily on institutional reliability and regulatory efficacy.
Behavioral Economics
Behavioral economists study how psychological factors influence market participants’ trading behaviors in the securities market, often leading to anomalies like bubbles or crashes influenced by herd behavior or irrationality.
Post-Keynesian Economics
Post-Keynesians extend Keynesian insights on uncertainty and liquidity preference, looking deeper into the complexities of financial markets, including the characteristics and impacts of trading marketable securities.
Austrian Economics
Austrian economists focus on individual decision-making and the entrepreneur’s role in the markets. They stress the importance of marketability of assets in the flexibility of individual and business finance decisions.
Development Economics
Development economists might assess how financial markets, including the trading of marketable securities, can support or hinder economic development, particularly in emerging economies.
Monetarism
Monetarists might consider the role of marketable securities in monetary systems, analyzing how such financial instruments contribute to the velocity and money supply within the economy.
Comparative Analysis
Marketable securities contrast sharply with non-marketable securities due to their liquidity, pricing, and convertibility advantages. Comparing various financial systems can illustrate the differential impacts these instruments have across regions and contexts, considering factors like ease of access, regulation, and market depth.
Case Studies
Case studies exploring the 2008 Financial Crisis or emerging markets’ approach to marketable securities reveal significant insights into the vulnerabilities and strengths of trading such assets.
Suggested Books for Further Studies
- “Principles of Corporate Finance” by Richard A. Brealey and Stewart C. Myers
- “Investment Science” by David G. Luenberger
- “The Intelligent Investor” by Benjamin Graham
- “Financial Markets and Institutions” by Frederic S. Mishkin and Stanley G. Eakins
Related Terms with Definitions
- Liquidity: The ease with which an asset can be converted into cash.
- Secondary Market: A market where previously issued financial instruments, such as stock and bonds, are bought and sold.
- Non-Marketable Security: Financial securities that cannot be sold or traded in the secondary market.
- Securitization: The process of pooling various types of contractual debt such as mortgages and selling their related cash flows to third-party investors as securities.
