The Effect of Market Risk and Liquidity Risk on Stock Returns in the Indonesian Capital Market

Abstract

This study examines the influence of market risk and liquidity risk on stock returns in the Indonesian capital market. Indonesia's capital market, which continues to grow rapidly, is experiencing challenges in terms of market volatility and liquidity imbalances, which can influence investment decisions. The purpose of this study is to measure and analyze the combined impact of these two types of risk on stock returns. This study uses a quantitative approach with a causal-comparative design, using primary and secondary data from companies listed on the Indonesia Stock Exchange (IDX) during the 2018-2023 period. The results show that market risk has a significant influence on stock returns, while liquidity risk does not show a significant influence. A coefficient of determination (R²) of 0.452 indicates that the two independent variables can explain about 45.2% variation in stock returns. The implication of this study is that investors need to pay more attention to market risk factors in their investment decision-making, while liquidity risk while important, does not have a significant impact on the Indonesian capital market.