Can investors’ sentiment and inflation influence share market return volatility? An ASEAN perspective

Abstract

This study analysed the impact of psychological and macroeconomic factors on share market returns and its volatility in the ASEAN countries. This study specifically analysed the impact of investors’ sentiment and inflation on the share market returns and its volatility in the ASEAN countries. This study analyses investors’ sentiment and inflation by using the Consumer Confidence Index and Consumer Price Index on share market returns indices. The data of this study is based on 117 set from four ASEAN countries over a 10 years period. This study uses the Johansen cointegration test to evaluate the long-run cointegrating relationship among investor sentiment, inflation and market returns using different data set of IHSG, BM, PSEI, and SET. This study tells us that the Johansen co-integration test for IHSG, BM, PSEI, and SET confirms the existence of a long-run equilibrium of Trace and Maximum Eigenvalues among variables. This study shows that there is a simultaneous influence on both investors’ sentiment and inflation on the share market returns volatility in the ASEAN countries. The results of this study show that investors’ sentiment and inflation significantly influence the movement of the share market returns which constantly drives the share market returns volatility. The findings in this study serve as a reference to investors and other interested parties in understanding the factors which are influencing the share market returns volatility. Moreover, this study assists investors in forecasting future of share prices so they can make right decisions which ultimately, would reduce the risk of loss.