Reference

The primary factors determining an asset's liquidity risk include:

1. Asset Type: Assets vary in their ability to be liquidated; some are more easily converted to cash than others. Fixed assets like property typically have higher liquidity risk compared to liquid assets like stocks or bonds.

2. Market Demand: The availability of a buyer in the market influences liquidity. High demand for certain assets can reduce liquidity risk, making them easier to sell at market value.

3. Time Horizon: The urgency with which an asset needs to be sold affects its liquidity risk. A shorter time frame may require selling at a discounted price, increasing the risk.

4. Market Conditions: Economic factors such as market volatility, interest rate fluctuations, and financial crises can all affect liquidity risk. In unstable markets, selling assets can be challenging without incurring significant losses.

5. Cash Flow Volatility: Entities with high cash flow volatility may face higher liquidity risks, as unpredictable cash needs can compel selling assets quickly, potentially at a loss.

6. Quality of Assets: Poor asset quality or assets with limited marketability can increase liquidity risk.

7. Funding Structures: High levels or rising costs of debt funding can contribute to liquidity risk if liabilities cannot be met without selling assets at a depressed value.

For further reading on liquidity risk and more detailed explanations of these factors, you can visit Investopedia and OCC.