Does COVID-19 Still Affect Liquidities and Returns in Indonesia?

Abstract

Most investors need useful information for investment decisions to obtain optimum returns. Based on this assumption, information obtained by investors will influence investment decisions. Information related to the continuation of the COVID-19 pandemic has tended to be a psychological factor affecting investors since 2020. The objective of this study is to analyze whether market liquidity still has an impact on abnormal returns in Indonesia. Logistic regression is used to test the relationship between market liquidity and abnormal returns on 661 firms listed on the Indonesia Stock Exchange over the period of January 1, 2020, to December 31, 2021. By combining systematic and unsystematic risks, illiquidity in 2021 has a positive impact on abnormal returns, although some combinations show insignificant results. This study finds that during 2021, investors tend to have low sentiment, which may be due to the continued threat of the COVID-19 pandemic, especially for stocks of firms that have high abnormal returns but low systematic risk. On the other hand, illiquidity does not have a significant impact on the stock of firms that have high abnormal returns but also high systematic risk from 2020 to 2021. This result indicates that investors in that stock are still optimistic and not influenced by the continuation of the COVID-19 pandemic.