A type of risk that arises from potentiality of asset prices (prices of assets traded in active markets) to move downward. For market participants holding or acquiring the assets, the risk is multifaceted: price drops, liquidity shocks, and inability to resell the assets at desired, market prices (or fair value). Asset price risk makes the liquidation value of the assets indeterminable or uncertain.
Asset price risk is a key component of market risk. Fluctuations in asset prices can drive volatility up and contribute to a market’s price volatility over a specific period. For firms, asset price risk does not just depend on uncertainty engulfing future dividends but also on uncertainty relating to future risk itself. A firm that has acquired specific assets from the market is also exposed to asset price risk as it may not be able to recover its acquisition costs from subsequent sale.
