See: Flight to Quality.
When investors get oh so nervous about the markets, they often convert their investments in lightly or thinly traded small companies into those with more liquid or easily sell-able investments. Like...crap.com trades on a million shares a day even though it has 200 million outstanding. Institutional investors may quickly want to be able to be "all cash" and sell fully out a given position. So when they buy shares of KO or DIS, which trade a gadjillion shares a day, then they are fleeing to liquidity, in that they can sell DIS and KO...very fast.
But it doesn’t always end badly. Every day, investors cash out their investments without having a negative effect on the market as a whole. Yes, it's called trading. Problems arise when too many investors pull out of too many investments all at once, which creates volatility in the market, which freaks out other investors and leads them to pull out their investments, which creates even more volatility, and so on.
Picture being at the beach when a ginormous gaggle of seagulls suddenly take flight all at once, traveling across the water toward destinations unknown. It can be a little disconcerting for beachgoers. Where are they going? Why did they leave? What do they know that we don’t know?
A flight to liquidity can have the same effect on investors, who can find themselves wondering why a whole passel of peeps just suddenly pulled out of a particular market or investment.
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Finance: What is a Liquid Market?17 Views
Finance allah shmoop What is liquid market Well it's one
that trades Ah lot High volume Lots of buyers Lots
of sellers Liquid lots of cash sloshing this way In
that way Go this way and that Did you ever
see a liquid market go this way and that That
little song Did you ever see a lassie Never mind
All right Weir Liquid markets Good Well because they implied
there's Lots of cash ready willing and able to be
put to work And that's usually a sign of a
healthy risk seeking active market versus risk averse one which
is you know hiding Ah liquid market means that investors
want to put their cash toe work that they have
actually saved cash along the way and or that they
have relatively easy access to credit And you can think
about it from the perspective of your kindly loving realtor
who wants a world where lots of people are buying
homes But in orderto have that happen you have to
have lots of people who are also selling homes at
the same time Otherwise prices just go higher and higher
with no supply to meet demand And at the end
of the day in real estate and it's in the
stock market while the most important thing yes that the
brokers get pays So that's a liquid market one that
trades a lot like it's Wet trading back and for
sloshing around not ice Where everything's you know all jammed 00:01:22.109 --> [endTime] up No needs heat or an animal or something
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