What is speculative demand?
Speculative demand is a term from Keynesian economics which describes the desire to have money for the purpose of investing in assets. For Keynes, all assets other than money are categorised as ‘bonds’. His other two needs regarding demand for money are precautionary demand and transactions demand.
Where have you heard about speculative demand?
As an informed investor, you’ve likely heard of British economist John Maynard Keynes and his economic theory that growth is best served by an interventionist government. Whenever you invest in an asset other than money, you’re engaging in Keynes’ speculative demand: you’ve foregone the high opportunity cost of holding cash.
What you need to know about speculative demand.
Speculative demand is one of Keynes’ three motives for demanding money. In this case, money is viewed as an asset class like any other with a rate of return and an opportunity cost of holding it. Generally, holding money provides you with a zero rate of return with the added prospect of high inflation lowering its value. The opportunity cost is the return you can earn by investing or lending your money. Therefore, your speculative demand for holding money or other assets is driven by your future expectations of inflation, interest rates and market returns.