Investor sentiment and bank deposits in Malaysia: do bank managers Time the Market while pricing deposits?
Financial market activities increase during high sentiment in Malaysia. Overly optimistic behavior is one of the reasons behind the escalation which influences flows of deposit to commercial banks. This study discusses the influence of investor sentiment on bank deposits and investigates any pote...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2014
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| Online Access: | http://journalarticle.ukm.my/7806/ http://journalarticle.ukm.my/7806/ http://journalarticle.ukm.my/7806/1/00000005.PDF |
| Summary: | Financial market activities increase during high sentiment in Malaysia. Overly optimistic
behavior is one of the reasons behind the escalation which influences flows of deposit to
commercial banks. This study discusses the influence of investor sentiment on bank
deposits and investigates any potential causal relationships among deposits, sentiment
and other fundamental variables. An investor sentiment index is constructed using two -
attitude based sentiment proxies, namely consumer sentiment index and business
condition index, the Bursa Malaysia stock market turnover, and the ASEAN ITSE composite
index. The VECM test found the sentiment index to positively influence deposit flows in
banks in Malaysia in the long run. Partial short run significance was revealed from the
first lag of sentiment proxies, which was positive as well. Among other variables, output
(GOP), money supply and interest rate showed a positive long-run relationship on bank
deposits whereas currency did have a negative impact on deposits. Output (GDP), money
supply and sentiment Granger caused bank deposits, whereas deposits and interest rate
showed bi-directional causal relationships. The study lends support to the argumentthat
higher sentiment increases stock and bank market activities primarily when the financial
market is bank dependent. Bi-directional causal relationships signifythat the conventional
demand-supply mechanism is active in pricing deposits. Banks set higher interest rates to
attract large amounts of deposits during a low sentiment period and vice versa. Similarly,
banks can offer a low interest rate on deposits during a high sentiment period assuming
that deposits will automatically flow though the banking channel in a bank-dependent
financial market. This argument connotes the presence of timing effect in deposit pricing
within the bank financial market. |
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