Investor Sentiment, Human Capital and Fama French Factors: Measurement and Performance in the Malaysian Market

Chandana Gunathilaka, Mohamad Jais

Abstract


ABSTRACT


This paper examines pricing implications of investors’ behavioral biasness in the Malaysian equity market. By using monthly data from January 2000, through January 2014, we explore the impact of investor sentiment, human capital, and Fama -French risk factors in multiple factor asset pricing models. A unique seven-variable composite index is used for the measurement of investor sentiment. Results indicate that sentiment is a priced risk, and display the ability to capture returns unexplained by SMB (Small minus Big) and HML (High minus Low) factors. Evidence suggests that sentiment is a source of systemic risk, and effectively explains returns of stocks with opaque characteristics. Modeling aggregate labor income produces insignificant results, suggesting that there are no returns for human capital in the Malaysian equity market. The Fama and French three factor model together with investor sentiment risk achieves a substantial pricing efficiency.


Keywords: Investor sentiment; human capital; returns; Malaysia.

ABSTRAK

Kajian ini menyelidik tentang implikasi gelagat pelabur yang bias di pasaran Malaysia. Dengan menggunakan data bulanan dari bulan Januari 2000 hingga bulan Januari 2014, kami mengkaji kesan sentimen pelabur, modal insan dan faktor risiko Fama-French dalam model perletakan harga aset pelbagai faktor. Tujuh pembolehubah yang unik digunakan untuk mengukur sentimen pelabur. Hasil kajian menunjukkan bahawa sentimen adalah risiko harga, dan memaparkan keupayaan untuk mengambil kira pulangan yang tidak dapat dijelaskan oleh factor SMB (Kecil tolak Besar) dan faktor HML (Tinggi tolak Rendah). Bukti kajian menunjukkan bahawa sentimen adalah sumber risiko yang sistematik, dan dengan jelas menerangkan pulangan saham yang mempunyai ciri-ciri legap. Hasil kajian juga menunjukkan model pendapatan tenaga kerja adalah tidak signifikan dan keputusan ini menggambarkan bahawa tidak ada pulangan untuk modal insan di pasaran Malaysia. Model tiga faktor Fama-French bersama dengan risiko sentimen pelabur mencapai kecekapan harga yang besar.

Kata kunci: Sentimen pelabur; modal insan; pulangan; Malaysia.


Keywords


Investor sentiment, human capital, returns, Malaysia.

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