In equilibrium, differences in rates of return on financial instruments are based on differences in

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Differences in rates of return on financial instruments are typically based on differences in their liquidity and risk. Riskier investments typically offer higher rates of return to compensate investors for accepting greater risk, while more liquid investments may offer lower rates of return due to their ease of access and lower risk profile. Differences in interest rate expectations and future expectations about the economy can also play a role, but liquidity and risk are generally the primary drivers of differences in rates of return. The efficient markets hypothesis may also come into play, but it is not directly related to differences in rates of return.

In Equilibrium, Differences in Rates of Return on Financial Instruments