The Role of Non-Fundamental Information in Significant Stock Returns: an Empirical Analysis of Non-LQ45 Stocks on the Indonesian Stock Exchange for the Period 2021–2025

Abstract

This study examines the effect of investor sentiment, illiquidity, and stock volatility on the returns of non-LQ45 stocks listed on the Indonesia Stock Exchange (IDX) during 2021 to 2025, with firm size as a control variable. Using a purposive sample of 375 non-LQ45 stocks from a population of 958 IDX-listed stocks as of December 2025, the study yields 22,500 firm-month observations over 60 months and estimates a Fixed Effect Model with White diagonal robust standard errors, following Chow and Hausman specification tests. None of the three non-fundamental variables has a significant partial effect: sentiment is negative, illiquidity is positive and correctly signed, and volatility is positive but contrary to the hypothesized direction; none reaches significance. Firm size shows a significant positive effect and is the only variable stable across robustness checks. Jointly, the four variables significantly explain returns, though explanatory power is low (R-squared = 2.49%). Winsorizing confirms that the volatility coefficient is highly sensitive to extreme observations, while other results remain stable. These findings suggest that non-fundamental factors, taken individually, do not reliably explain non-LQ45 return formation over this period, even though their joint contribution is significant and consistent with a market that is not fully efficient.