The presence of higher penny stock returns in the Malaysian stock market in recent years may have attracted the attention of investors. On the other hand, it indicates a liquidity risk premium, implying a higher risk associated with the stocks. Employing yearly panel data of 434 penny firms and 319 non-penny firms from 1st January 2019 to 31st December 2023, this study aimed to explain penny stock returns versus non-penny stock returns in the Malaysian stock market from a liquidity perspective. The dependent variables were penny and non-penny stock returns in the Malaysian stock market meanwhile, the main independent variable was liquidity. The other independent variables consisted of the factors in the five-factor model; risk, firm size, book-to-market, and momentum. Further, this study employed three static panel data, namely Pooled Ordinary Least Squares, Random Effects Model and Fixed Effects Model. The finding showed that liquidity, book-to-market, and momentum influenced penny stock returns significantly. Simultaneously, liquidity, firm size, and momentum influenced non-penny stock returns in the Malaysian stock market.
Sallehuddin et al. (Fri,) studied this question.