Purpose- The present study tries to judge the impact of liquidity on stock return in two select Indian companies listed in Bombay Stock Exchange (BSE) by making use of a restructured stock market dataset and financial data for the period from 1 January 2008 to 31March 2025. Methodology-The study is solely based on secondary daily, monthly, and annual stock market data collected from BSE India. Actual returns calculated using the log difference of previous price and current price Rt= Ln (Pt-Pt-1), where P is the price, Ln is natural logarithm and t is the period and Rt is Actual Return. Amihud (2002) measure of illiquidity is applied to arrive at stock illiquidity, single index model (SIM) is used to compute market risk. Several econometric tools like unit root test such as ADF test, PP test, granger causality test, robustness test like multicollinearity, serial correlation (Breusis usedy test), heteroscedasticity test (Breusch-Pagan-Godfrey Test), normality of error terms (Jarque-Bera Test), Ramsey Reset test etc applied. Finally, generalized method of moment has been applied to judge the impact of illiquidity on stock return on select conglomerates. Findings- The results suggest that the impact of illiquidity on stock returns is diverse in case of select conglomerate industries listed in Indian stock market. More precisely, we observe a reliable positive impact of illiquidity on stock returns in Reliance industry and insignificant negative impact of illiquidity on stock returns in Adani industry. However, we do not find any granger causal connection between fluctuation in liquidity and stock returns in both Indian conglomerate industries. Stock’s systematic risk has an insignificant positive effect on stock returns in case of both industries indicating a direct, risk-reward relationship, although existence of insignificantly positive effects. Conclusion- This research study on the nexus between illiquidity and stock return might be viewed as an effort towards understanding stock return, illiquidity, volatility dynamics in the emerging economy like India. Keywords: Stock returns, illiquidity, market risk, reliance, Adani.
Chatterjee et al. (Sun,) studied this question.