| Summary: | This research aimed to empirically test the impact of liquidity to stock
return in two stock groups with different liquidity level. First group consist of the
highest stock liquidity. In the other hand, last group is the most illiquid companies.
Data used in this research are taken from Indonesia Stock Market from January
2005 until December 2009. Frequency data monthly, totally there are sixty month
observations. Five proxies from trade based measures and two proxies from order
based measures are used in this research. Seven variables non relative and seven
variable relative are implemented. Two hypothesises are obligated. First, what is
the dominant liqudity proxy in Indonesia and which one is better relative measures
or not relative
The result explained that liquidity has positively impact in the most liquid
company but negative in the least liquid stock group. The first hypothesis can not
answered because of the researcher can not get the same sample after stock sorting
depend on seven proxies namely volume, value, frequency, turnover, illiquidity,
spread and spread per price. Relative Market Liquidity Turnover or RML TURN is
the only relative proxy that negatively significant impact stock return in the least
liquid stocks.
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