Original scientific paper
https://doi.org/10.1080/1331677X.2021.2025126
Market sentiments and firm-level equity returns: panel evidence of Malaysia
Zulkefly Abdul Karim
Fairul Shah Rizat Muhamad Fahmi
Bakri Abdul Karim
Mohamed Aseel Shokr
Abstract
This study focuses on the impact of market sentiment on firmlevel equity returns in Malaysia by hypothesising that market sentiment is a relevant risk factor. Understanding how the market
sentiment reflects the equity return is crucial to market participants managing their portfolio investment risks. In modelling for
firm-level equity return determinants using augmented Fama and
French (1992, 1996) three-factor model, this study used data from
a sample of 608 publicly listed firms for 2010–2019 and the
dynamic panel GMM estimation technique. The findings revealed
that market sentiment indices, namely Business Conditions Index
(BCI) and Consumer Sentiments Index (CSI), strongly and positively influenced firms equity returns. Excellent market sentiment
encouraged a bullish strategy, increasing share prices and, consequently, stock returns. In addition to market sentiment, other
related variables, namely domestic market returns, international
market returns, small minus big (SMB), high minus low (HML),
and firms’ liquidity ratio, are also found to be statistically significant in influencing firms equity returns. The policy implication
provides a vital strategy to market participants, particularly fund
managers and investors, to accordingly manage their risks and
returns on their portfolio investment.
Keywords
Behavioural finance; emerging market; investor sentiment; firm’s stock returns; Fama-French multifactor model; system GMM; short panel; MIER
Hrčak ID:
302798
URI
Publication date:
31.3.2023.
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