Definition for : Liquidity discount
Liquidity discount is a lower valuation applied to illiquid Shares. Lack of liquidity may increase Volatility of the Share price. Therefore Investors will discount (see Discounting) an illiquid Investment at a higher rate than a liquid one. This higher Discounting rate will result in the liquidity discount.
(See Chapters 19 and 32 of the Vernimmen)
To know more about it, look at what we have already written on this subject