liquidity risk

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Liquidity risk

The risk that arises from the difficulty of selling an asset in a timely manner. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Liquidity Risk

The risk that an individual or firm will have difficulty selling an asset without incurring a loss. That is, there may be a lack of interest in the market for a particular asset, forcing the owner to sell it for less than its actual value. Liquidity risk may be quantified as the difference between an asset's value and the price at which it can likely be sold. It is highest for lightly traded securities and small issues, as well as during a bear market.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

liquidity risk

The risk of having difficulty in liquidating an investment position without taking a significant discount from current market value. Liquidity risk can be a significant problem with certain lightly traded securities such as unlisted options and municipal bonds that were part of small issues. Also called marketability risk.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
We must however avoid overdiversification as this too can erode return on investment.We can hedge against liquidity risks first by ensuring that our spending budgets accurately reflect of our monthly expenses.
''Significant constraints on banks' capacity and willingness to absorb potential increases in government financing needs in the event of a shock are intensifying government liquidity risks in Kenya (B2 stable),'' Moody's said in a report released on Tuesday.
Shanghai: China's latest tightening of regulations on money market funds (MMF) is unlikely to slow sector growth significantly, but should lower liquidity risks marginally, said Fitch Ratings.
The BSP explained earlier that while the capital adequacy ratio cover solvency issues and risks, the NSFR and LCR will protect banks against liquidity risks which may happen even if a bank is still solvent.
China has said that it has launched new rules to protect lenders from liquidity risks.
The stability of the Nigerian banking system comes after foreign currency liquidity risks moderated due to rising oil prices and a more liberal foreign exchange policy, says Moody's Investors Service in a report, Banking System Outlook -- Nigeria; Liquidity risks have eased but earnings pressure and loan quality risks remain.
Section III describes methods of constructing measures for liquidity risks and market power.
It noted liquidity risks would always be present as banks expand their lending activities.
Investor s redeemed several billion dollars' worth of shares in US high-yield bond funds following the Third Avenue Focused Credit Fund's redemption halt in December, highlighting the importance of assessing liquidity risks within mutual funds.
Market characteristics: Some of the characteristics of the market are expected to affect a company's stock liquidity risk in this research, including stock liquidity, volume of shares traded, and can be past returns and firm size, and are presented in the model as a control variable affecting stock liquidity risks.
Swing pricing would enable mutual funds, subject to board approval and oversight, to reflect in a fund's net asset value (NAV) costs associated with shareholders' trading activity, and "is designed to protect existing shareholders from dilution associated with shareholder purchases and redemptions and would be an additional tool to help funds manage liquidity risks," the agency states.The SEC oversees registered investment companies with combined assets of approximately $18.8 trillion and RIAs with approximately $67 trillion in regulatory assets under management, White noted.