Impact of Idiosyncratic Risk, Systematic Risk and Investor Sentiment on Liquidity of Stock: The Indian Case

This paper endeavours to investigate the combined impact of volatility, as decomposed into systematic and idiosyncratic risk and investor sentiment on liquidity taking 97 non-financial companies belonging to NIFTY 100 index for the period 2008-09 to 2017-18. Employing panel data technique, it appears that the idiosyncratic risk component of volatility has a significant and positive relationship with illiquidity, while the second component of volatility, viz. systematic risk appears to have no significant relationship with illiquidity. Moreover, the results demonstrate that investor sentiment maintains a significant and negative relationship with illiquidity. However, no significant relationship is found between illiquidity and firm size. The empirical findings have direct implications for stock exchange regulators and corporate managers of Indian non-financial listed firms.