The substitution of less liquid assets for more liquid assets (investments). This constitutes a reallocation tactic whereby investors sell what they perceive to be less liquid or higher risk investments, and buy more liquid investments instead, such as government securities, blue chip stock, etc. Usually, flight-to-liquidity results in panic which could cause a systemic crisis. In essence, the flight to liquidity reflects an increase in the precautionary motive of the demand for more liquid investments. This may result in a relative price drop of illiquid assets versus liquid assets.
Investing
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