The risk arising from the possibility that there will be no active market for the assets held by an economic agent. The absence of a market reduces the liquidity of the assets. For example, when there is a high likelihood of default by a country no one will be willing to purchase the bonds it has issued. The possibility that this might happen is the liquidity risk for the bond holder. See also liquidity preference.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|