Author

  • Nasha Shafridah Binti Abdullah

    • Faculty of Business and Management, UiTM Shah Alam, Malaysia
    • Malaysia

  • Siti Nurhidayah Mohd Roslen

    • Faculty of Business and Management, UiTM Cawangan Selangor, Puncak Alam
    • Malaysia

  • Nur Zahidah Binti Bahrudin

    • Faculty of Business and Management, UiTM Cawangan Selangor, Puncak Alam
    • Malaysia

  • Pang Mary

    • School of Accounting and Finance, Nilai University, Nilai, Negeri Sembilan, Malaysia
    • Malaysia

  • Siti Nur Nadhirah Binti Mohd Roslen

    • Corporate and Institutional Business Group, Hong Leong Investment Bank Berhad, Kuala Lumpur, Malaysia
    • Malaysia

Abstract

Market sentiment has been found to be one of the key determinants of stock market volatility, especially in globally interconnected economies such as Malaysia. With the growing influence of retail investors operating in advanced digital trading environments, understanding the role of sentiment in shaping market behavior has become more critical. Despite existing regulatory frameworks designed to protect investors from manipulation and misconduct, current surveillance practices still rely on traditional indicators such as price and trading volume. These indicators may not fully capture how the market works in a real investment setting. This study addresses a critical gap by empirically examining the effects of market sentiment (measured through the Consumer Sentiment Index) along with other macroeconomic variables on stock return and its volatility in Malaysia. Using the GARCH-X Model on stock return data from January 1990 until January 2025, we find that CSI has a positive and significant relationship with stock returns, indicating that Malaysia’s stock market returns were more strongly influenced by investor confidence than by geopolitical events and monetary policy factors. In addition, the results from the GARCH-X model show that the stock market does not always move in line with the macroeconomic fundamentals in the short term. Additionally, the model suggests that in the short term, stock returns become more volatile during periods of market instability, with volatility amplifying when new shocks emerge. However, in the long run, the market tends to adjust and return to equilibrium. These findings underscore the need for regulatory authorities to enhance real-time volatility monitoring tools and promote better access to structured, legal, and accessible data sharing in ensuring effective market responses during periods of crisis or adverse global events.

Keywords

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How to Cite

Binti Abdullah, N. S., Mohd Roslen, S. N., Binti Bahrudin, N. Z., Mary, P., & Binti Mohd Roslen, S. N. N. (2025). Market Sentiment and Stock Return Volatility in Malaysia: Evidence using the GARCH-X Model. Information Management and Business Review, 17(3(I), 394-402. https://doi.org/10.22610/imbr.v17i3(I).4667

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Copyright (c) 2025 Nasha Shafridah Binti Abdullah, Siti Nurhidayah Mohd Roslen, Nur Zahidah Binti Bahrudin, Pang Mary, Siti Nur Nadhirah Binti Mohd Roslen (Author)

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Research Paper

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Vol. 17 No. 3(I) (2025) Tourism, Heritage & Employee Retention View issue contents

Published

2025-09-13

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