See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/334225751

Chapter 6 Investors' Confidence in the Malaysian Stock

Market and Religiosity during Investment Decisions

Chapter · July 2019

CITATIONS READS

0 151

3 authors, including:

Razali Haron
IIUM Institute of Islamic Banking and Finance (IIiBF)
120 PUBLICATIONS   464 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Efficiency of Qatari banking industry: an empirical investigation View project

ISLAMIC MICROFINANCE View project

All content following this page was uploaded by Razali Haron on 04 July 2019.

The user has requested enhancement of the downloaded file.

 Chapter 6
Investors’ Confidence in the Malaysian Stock Market
and Religiosity during Investment Decisions
Jaiyeobe Haruna Babatunde, Adewale Abideen Adeyemi and Razali Haron

Abstract

This study investigates investors’ confidence in the Malaysian

stock market based on the notion that stocks are the best investment
avenue for long-term investors, who can just buy and hold through the
ups and downs of the market. Knowing about investors’ confidence in
the Malaysian stock market is important because confidence in capital
market is a critical driver of economic and financial fluctuations; in this
case, investors would be willing to invest at prevailing prices if their
confidence level is high. In fact, they would increase their holdings of
risky investment by buying appropriate instruments in the marketplace
if the confidence level is high. As such, the success of securities markets
is particularly dependent on the investors’ confidence and as such, it has
gained the interests of policymakers and academicians. In addition, this
study also examines the role of investors’ religiosity during investment
decisions. Religion affiliation is one of the contributing factors that
influence the wealth accumulation and investors’ investment behaviour.
Based on this, religion plays an important role during investors’
investment decisions, especially in Malaysia and other related countries.
Therefore, this study has dual objectives, namely to investigate investors’
confidence in the Malaysian stock market, as well as their religiosity
during investment decisions. To achieve these objectives, survey
questionnaire was developed by the researchers and completed by 366
stock market investors, including fund managers and retail investors.
Using several suitable analyses, we have concluded, though with
caution, that stock market investors have confidence in the Malaysian
stock market as the best investment avenue in the country. Moreover,
this study has also shown that highly religious investors hold firmly to
their religion guidelines when making investment decisions compared
to other investors in the lowest category; more so, ethical businesses
 Islamic Fund And Wealth Management : A Way Forward

and being socially responsible are other factors found important to the
investors before selecting company for investment reasons. As a result,
discussions are made, implications are offered, and recommendations for
future studies are discussed.

1.0 Background Discussion on Investors’ Confidence and Religiosity

In mainstream discussion on investor behaviour, investors’

confidence has been treated as an integral part of behavioural finance
(Shiller, 2000; Tarumizu, 1993; Yang et al., 2012). Particularly, the
tendency for investor confidence to change significantly over time and
its potential influence on the stock market behaviour remained critical
consideration in this regard. As crucial as this issue is, the plethora of
previous studies in this area are mostly related to the macroeconomic
aspects of investor confidence (Ramirez, 2003), or how individual
factor, such as confidence, and other related factors influence investors’
investment behaviors (Yang et al., 2012). As a matter of fact, investors’
confidence offers strong foundation upon which the securities markets
are built; without investors’ confidence, securities markets would remain
a thin shadow and no one would recognize them as investment avenues.

Moreover, the success of securities markets is particularly

dependent on the investors’ confidence and as such, it has gained the
interests of experienced policymakers and academicians. According to
Tarumizu (1993), there are three technical but mental reasons for lack
of investors’ confidence in the Asian and Pacific capital markets. These
are: firstly, there is absence of appropriate financial information about
the domestic security market in general and listed firms in particular;
secondly, there is inability of the regulatory authorities to effectively
monitor and supervise the market and thereby protect investors against
market manipulation and other various forms of excesses; thirdly, there is
inadequacy of the accounting and auditing of financial reports. Although
the effect of the above reasons for lack of investors’ confidence in Asian
and Pacific capital markets might have reduced in recent time, the effect
of damage created on the investors’ confidence are still noticeable in
Asian and Pacific capital markets (Tarumizu, 1993).

Generally speaking, there has been series of discussion among

regulators and concerned member of the public about the importance
of maintaining investors’ confidence in the securities markets. This is
because in a situation where investors’ confidence is not maintained,
unconfident and suspicious investors would rather prefer not to exchange

78
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

their hard-earned income for such abstract and intangible goods as

corporate securities. In such case, they would instead prefer to channel
their cash into tangible assets like real estate or gold, or keeping it under
their mattresses (Stout, 2002). In addition, investors’ confidence and
expectations are buoyed by past price increases and past achievements;
these would probably entice them to participate more in the stock markets.
By doing so, the cycle would probably repeat again and again, leading in
an amplified response to the original precipitating factors.

Given the importance attached to the investors’ confidence for proper

functioning of stock market, there is a dearth of research that addresses
this issue, especially in Malaysia. With this in mind, the researchers have
opted for filling this gap by uncovering the notion that stock market has
always been seen as the best investment avenue and would always be, even
when it is overpriced by historical standards (Shiller, 2015). Carrying out
research of this nature is particularly essential mechanism for capital
allocation in a mix or free market economy. According to Shiller (2015),
the notion that stocks are the best investment and remain profitable over
the long run had taken over investors’ thinking since late 1990s. As such,
knowing about the investors’ confidence on the Malaysian stock market
is important because this would enable the policymakers to understand
investors’ current thinking and expectations about the Malaysian stock
market.

Based on the above discussions, the researchers have operationalized

retail investors’ and fund managers’ confidence into this study. This is
done by incorporating investors’ beliefs into the study’s questionnaires
by asking whether they agree or disagree with the statement “the
Malaysian stock market is the best investment avenue for long-term
holders, who can just buy and hold through the ups and downs of the
market.” This statement, which was adopted from Shiller's (2015) high-
income individual investor questionnaire in the U.S. provides avenue for
the researchers to reveal the investors’ confidence in the Malaysian stock
market.

Moving further to the investors’ religiosity during investment

decisions, religion affiliation is one of the contributing factors that
influence the wealth accumulation and investors’ investment behaviour.
One of the most significant defining traits of a family is religion and
this is why religion has indirect effect on family’s asset accumulation
(Keister, 2003). While this so; perhaps, there are limited discussion on
“investors’ religiosity during their investment decisions” in the academic

79
 Islamic Fund And Wealth Management : A Way Forward

literature; thought there is growing consensus that religion has great

influence on the investment decisions (Jaiyeoba & Haron, 2016; Pitluck,
2008; Renneboog & Spaenjers, 2012).

For the reasons that beyond the scope of this study, some investors
are precluded from investing in certain companies due to their faiths; for
instance, Jaiyeoba and Haron (2016) find that being Sharīʿah compliant
is particularly important to Malaysian Muslim investors before making
investment decisions on any companies, suggesting that investments
are not simply made by some investors to increase their wealth; but
more importantly, they also evaluate the compliance of any investments
to their faith before investing. In other words, investment is not only
utilitarian (functional) to some investors, but faith adherence and hedonic
(pleasurable) also matters to some investors, especially in Malaysia
(Allen & McGoun, 2001).

Similar to culture, the effect of religion on people’s daily activities,

including investment is enormous (Chang & Lin, 2015). This suggests
that religion always matters and it is persistent. To justify this, the
socioeconomic characteristics such as religious, psychological,
social, economic, and political identities of individuals supersede
their investment identities. Accordingly, these characteristics could
be reflected in stock prices and as such, they could better explain the
portfolio decisions of individual investors. Also, it seems intuitive to
assume that individuals with different social environments are likely to
exhibit different behaviour. The fact that decisions are made by people
– not by the markets, the interaction among people with respect to their
religion, individual choices, corporate culture and social norms would
sometimes preclude them from investment in certain company or, even
in certain economic settings (Canepa & Ibnrubbian, 2014).

Therefore, this chapter investigates, on the one hand, the investors’

confidence on the Malaysian stock market. Similar to Guiso, Sapienza
and Zingales (2008), we have demonstrated, with this objective, that the
decision to invest in stock market is not only dependent on the assessment
of risk-return trade-off given the existing data, but also requires an act
of confidence that the information at our disposal are reliable and that
the overall system is fair. On the other hand, this study also investigates
investors’ religiosity during investment decisions. By carrying out
this study, the researchers have had the opportunity to operationalize
the concept of religion empirically. As noted by Iannaccone (1998),
incorporating religion into a study would enhance economics at several

80
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

levels, such as exploring how religion affects investment behaviour,

revealing religiosity level during investment decision, understanding
economic attitudes, producing information about a neglected area of
“nonmarket” behavior, presenting how economic models can be modified
to address questions about belief, norms, and values. In short, religion
has been linked to investment decisions at microeconomic level; but little
are known about the link between religion and corporate or, individual
investment decisions.

Meanwhile, this study has been structured into five main sections.
As witnessed before this juncture, the first section offers background
discussion on investors’ confidence and religiosity. Second section
discusses relevant literature covering two integral part of this study –
investors’ confidence and, religion and investment decisions. Section
three converses methodology adopted, sample size, data collection,
and methods of data analysis. Section four presents the analysis part of
this study; it also covers discussion of the results. Finally, section five
concludes this study.

2.0 Literature Review

This section has two important subsections. The first part of this
section (subsection 1) focuses on the literature regarding investors’
confidence and security market, while the second part (subsection 2)
reviewed literature on faith and investment decision. While investors’
confidence and faith remain a crucial aspect of this study, the researchers
separate them into two subsections to assist readers to understand the
messages that the researchers are communicated through this section. As
seen shortly, several authors have documented that investors’ confidence
is the basis for proper functioning of any securities markets (Stout, 2002;
Yang et al., 2012; Zhao, 2017); also, several other studies have claimed
that investors’ faith or religion has significant effect on investors’
investment decisions (Jaiyeoba, Adeyemi, Haron, & Che Ismail, 2018;
Jaiyeoba & Haron, 2016; Pitluck, 2008; Renneboog & Spaenjers, 2012).
Hence, the researchers now turn to the main themes of this section.

2.1 Investors’ Confidence and Securities Market

The researchers begin this section by asking the basic important

question: why do investors invest? There seems to be consensus in
answering this question; that is, the expectation to make money is what
persuades investors to invest. Having answered this basic question, we

81
 Islamic Fund And Wealth Management : A Way Forward

are confronted with more appealing, but a bit more difficult question:
why do investors believe they will make money by purchasing corporate
securities? In other words, why are they not thinking that their money
may be stolen or squandered by larcenous executives, unscrupulous
corporate directors, dishonest brokers, investment advisors or, mutual
fund managers? The tenet for answering the above question must be
related to confidence and trust (Stout, 2002).

To succeed in securities markets, investors’ confidence must be

strong at all times because low confidence level can be debilitating
and paralyzing the investment opportunities. For example, investors
whose confidence level is below the critical level may manifest overly
conservative behavior, leading to avoiding exploitable opportunities
with positive expected values and denying themselves available gains.
In contrast, investors are not expected to display overly high confidence
(overconfidence) level in stock market because that may also result in
excessive risk taking, reckless actions, and accumulating avoidable
losses (Estes & Hosseini, 1988). According to Newman, as cited in Estes
and Hosseini (1988), the feeling of confidence by investors involves
interaction between what they know and feel about their own abilities,
about a particular task, and its level of difficulty.

According to Ko (2017), investors’ confidence is based on their

“perception of the attractiveness of their investment opportunities in
terms of perceived risks and expected returns pertaining both to the
prospects of issuers and the prospect of expropriation by other market
participants”. Without confidence and trust in the market, most people,
especially those who are unfamiliar in finance, would rather prefer to put
their money elsewhere. They would be unwilling to enter a three-card
game played on the street because they do not trust the fairness of the
game (Guiso et al., 2008). As such, the decision to participate in the stock
market by people depends largely on their confidence of the fairness in
stock market. Against this backdrop, some researchers have recently
documented several interesting results.

For example, Chen (2011) investigates the relationship between lack

of consumer confidence and stock returns during market fluctuations,
using Markov-switching framework; sample span from 1978:M1 to
2009: M5 of Standard & Poor’s S&P 500 price index was employed,
according to the author. After analyzing the data obtained, it was shown
that market pessimism has larger impacts on stock returns during bear
markets. Similarly, Guiso et al. (2008) examine the effect that lack

82
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

of trust can have on stock market participation. According to them,

investors factor-in the risk of being cheated when deciding to invest in
stocks; they noted that less trusting people are less likely to buy stocks
or, buy less if conditional on buying stocks. To investigate the effect of
trust on stock market participation, Guiso et al. (2008) use data collected
from samples of 1,943 Dutch households; they found lack of trust as an
important factor in explaining the limited participation.

Moreover, Jansen and Nahuis (2003) study the relationship between

stock market developments and consumer confidence in 11 European
countries from the year 1986 to 2001. With Germany as the main
exception, it was revealed that stock returns and changes in sentiment
are positively correlated for nine countries. Overall, it was shown that
the relationship between stock market and consumer confidence is
driven by expectations about economy-wide conditions rather than
personal finances. A similar study by Fisher and Statman (2003) which
investigates the relationship between consumer confidence and stock
returns also documents that consumer confidence goes up and down
with stock returns. They explained that high stock returns, whether S&P
500, Nasdaq, or small-cap, are accompanied by statistically significant
rises in consumer confidence. In addition, they also reiterated that
consumer confidence about the economy is accompanied by statistically
significant increases in the bullishness of individual investors about the
stock market.

More so, Yang et al. (2012) investigate how traders influence

investor confidence and trading volume. Having collected data from
206 investors with at least six months’ experiences in futures market,
it was concluded that investors’ confidence is significantly related to
volume and individual context. They also showed that greater investor
confidence leads to higher trading volume, owing to the trader’s positive
personality, and demographic characteristics. By the same token, Holt
and DeZoort (2009) evaluate the extent that a descriptive Internal Audit
Report (IAR) affects investor confidence and investment decisions; and
it was found that the provision of IAR contributes to investor confidence
and investment decisions. According to them, participants provided with
an IAR had more confidence in financial reporting reliability and higher
perceived company oversight effectiveness than participants without
access to an IAR.

Furthermore, Sturm (2003) examines investor confidence and

returns following large one-day price changes. As reported by the author,

83
 Islamic Fund And Wealth Management : A Way Forward

data were collected from 2002 Fortune 500 index from January 1, 1988
to December 31, 2000; and the results suggest that certain pre-event
characteristics influence investor confidence, which in turn influences
buying and selling decisions and thereby drives post-event returns.
Also, Burnett (2017) investigates liquidity and investor confidence in
the turn-of-the-month and finds that when confidence is high, investors’
willingness to invest increases liquidity in the turn-of-the-month, while
absent of liquidity was found when investors’ confidence is low. This
discussion ends this section, the researchers proceed with another
important part of this section – religion and investment decision.

2.2 Religion and Investment Decision

The extant empirical studies on religion and investment decisions

are reviewed in this section. Based on extant literature, religion plays
an important role during investors’ investment decisions, especially
in Malaysia and other related countries. For instance, several studies,
such as Jaiyeoba and Haron (2016), Pitluck (2008) and, Renneboog and
Spaenjers (2012), have employed different approaches to emphasize on
the influence of religion on investment decisions. For example, Jaiyeoba
and Haron (2016) find that Malaysian investment decisions are based on
comfort or convention, and being Sharīʿah compliant is highly important
to Muslim investors. Lucey and Zhang (2010) use religious commonality
as a single proxy for cultural distance since people’s behavior, thoughts,
and attitudes might be affected by beliefs; their regression results show
that there is positive correlation between stock market and common
religion.

In another study by Barro and McCleary (2003), international

survey data on religiosity from several countries was used to investigate
the effect of church attendance and religious beliefs on economic growth;
they found that economic growth is positively related to religious beliefs.
Similarly, Abbes and Abdelhédi-Zouch (2015) examine the effect of the
celebrated Islamic hajj (the pilgrimage) on the stock market performance
in Saudi Arabia; they indicated that Muslim investors’ sentiment after
hajj pilgrimage is significantly higher compared to before hajj pilgrimage.
This shows that stock market performance is influenced by the celebrated
Islamic hajj.

In addition, Gavriilidis, Kallinterakis and Tsalavoutas (2014)

investigate whether positive mood translates into higher herding
behaviour during Ramadan compared to days outside Ramadan using

84
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

samples from Muslim majority countries; the authors find significant

herding during Ramadan compared to non-Ramadan days in most of the
markets considered.

Similarly, Oguzsoy and Guven (2004) examine the effect of Holy

Days – feast of Ramadan and the feast of Sacrifice – on stock returns
using data from the Istanbul Stock Exchange (ISE); they found that stock
returns are higher in two days before religious holidays compared to
other days in a year. Furthermore, Frieder and Subrahmanyam (2004)
find results that support abnormally positive returns around St. Patrick’s
Day and Yom Kippur, and negative returns around Rosh Hashanah;
though the reason for positive returns with certain religious holidays and
negative returns with others was not specified by the authors.

Moreover, Osoba as cited in Canepa and Ibnrubbian (2014) uses

individual panel data and shows that individuals who frequently attended
churches are risk-averse compared to other individuals who are less
religious – individuals who are less frequent in the churches are risk-
seeking individuals. In addition, Canepa and Ibnrubbian (2014) examine
the effects of religion beliefs on stock prices; they show that individuals’
religion tenets have important effect on the investors’ portfolio choices.
According to them, Sharīʿah compliant stocks are more rewarded and
volatile than non-Sharīʿah compliant. More so, Jiang, Jiang, Kim and
Zhang (2015) contend that firms that are founded by religious family
are less risky compared to other similar firms which are not founded by
religious family. Using 4,159 family firms as a sample in China, they
found that firms that are founded by religious family have less leverage
and lower investment in intangible and fixed assets compared to other
founded by non-religious family.

Moreover, Guiso, Sapienza and Zingales (2003) employ world

values surveys to investigate the relationship between religion beliefs
and economic attitudes while controlling for country-fixed effects. They
found that individuals’ religious beliefs are associated with good economic
attitudes, such as trust in others, in legal system and government, and
the belief that market outcomes are fair. Also, Hess (2012) examines the
impact of religiosity on personal investment decisions; the author finds
that individuals that are residing in a strong religion environment tend
to have significantly higher credit scores as well as significantly lower
levels of credit card balances, foreclosures, and bankruptcies compared
to individuals that are living in lower levels of religiosity.

85
 Islamic Fund And Wealth Management : A Way Forward

Hilary and Hui (2009) examine the influence of corporate culture,

including religion, on firm behaviour; they found evidence for a link
between religion and risk aversion (that is, firms in country with higher
level of religiosity display low degrees of risk exposure). They also
showed that this relationship influences organizational behaviour. Also
due to the influence on the firm performance, these firms also exhibit a
lower level of investment rate and less growth; however, they generate a
more positive market reaction when new investment is announced. More
so, when switching to another firm, chief executive officers are more
likely to join similar religion environment firms. Following this section,
the next subsection summarizes this section on literature review.

2.3 Summary of Literature Review

This section is segmented into two main subsections to assist readers

to clearly understand the important messages that are communicated to
them. In the first part, we showed why investors’ confidence is important
and how this could improve their participation in the securities markets.
After reviewing literature, we found that very few studies, if any, have
actually revealed the investors’ confidence in stock market in Malaysia;
even majority of those studies from other countries have restricted
themselves to secondary data. Hence, this study has filled the above gaps
by revealing investors’ confidence in the Malaysian stock market and at
the same time, it has also used primary data in its quest to understand
investors’ confidence in the Malaysian stock market. In the second part,
the researchers have focused on the religion and investment decision.
This was done in order to improve our understanding about the roles that
religion play during investment decisions. Thus, we have also increased
the literature on the religion, particularly when making investment
decisions.

3.0 Methodology

3.1 Research Design, Instrument and Data Collection

The researchers have adopted quantitative research design for

this study. This approach has gained global acceptance in this area of
study and it has been previously used by researchers when discussing or
investigating investors’ confidence in securities market and the influence
of religion on investment decisions (Braithwaite & Kemp, 2007; Chen,
2011; Goh, Rasli, & Khan, 2014; Guiso et al., 2003; Hilary & Hui,
2009; Jiang et al., 2015; Kramer, 2016; Lachowska, 2011; Oxley, 2007;

86
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

Shaliastovich, 2015; Sturm, 2003; Zhao, 2017). Based on this approach,

questionnaire was developed and used in collecting data for this study;
with this instrument, data were collected from 366 investors (336 retail
investors and 30 fund managers) in Malaysia. With the permission to
collect data from investors during the Securities Commission and Bursa
Malaysia’s investment workshops, the researchers have visited four states
and they are Kuala Lumpur, Selangor, Perak, and Penang.

As mentioned, the sole question incorporated to the questionnaire

to measure investors’ confidence was adopted from Shiller's (2015) high-
income individual investor questionnaire in the U.S. “the stock market
is the best investment avenue for long-term holders, who can just buy
and hold through the ups and downs of the market”. Whereas, questions
were developed based on the existing literature to measure investors’
religiosity level during investment decisions (Farook, 2007; Jaiyeoba,
Adewale, & Quadry, 2018). The data collected on the investors’ religiosity
were classified into three main categories – low, moderate, and high.
Before subjecting the questionnaire developed for data collection, content
validity and face validity were performed, and corrections received were
carefully incorporated. Moreover, a Likert-type scale, ranging from
strongly disagree to strongly agree (1←3→ 5), was used to assess how
much respondents agree or disagree with all the questions included in the
study’s questionnaire.

Finally, the collected data were analyzed using Statistical Package

for the Social Sciences (SPSS) and Microsoft excel. Initially, SPSS was
used to analyze the data collected on investors’ confidence, but later
transferred to Microsoft excel in order to build the bar chart presented
in the subsequent section. After performing descriptive tests on the data
collected to measure investors’ religiosity, one-way analysis of variance
(ANOVA) and Post hoc Scheffé multiple comparisons, through SPSS,
were also performed to reveal investors’ religiosity during the investment
decisions. Meanwhile, investors’ profiles are shown in Table 1 below.

Accordingly, a total number of 366 investors from Malaysia have

included in this study; based on the data collected, 67.2% are male and
23.8% are female. The age of majority of them is from 20 years to 30
years (44%); large numbers of them are degree holders with approximate
57%. On their religion affiliation, about 44% of them are Buddhist, this
is followed by Islam with approximately 30%. The area of expertise of
almost 52% of them is in finance/accounting/investment; this is followed
by technical; others, business, and academic with 21.3%, 11.2%, 9.8%,

87
 Islamic Fund And Wealth Management : A Way Forward

6.3%, respectively. Considering their ethnicity, more than 63% are

Chinese, 32.2% are Malays, and 3.3% are Indians. In term of their monthly
income, more than half of the respondents earn less than RM5,000 per
month with 67.1%, about 26.2% earn between RM5,000 and RM10,000
per month, while 16.7% of the total respondents earn above RM10,000
a month. Finally, due to the researchers’ inability to reach out to large
number of fund managers, 336 (91.8%) of the respondents are retail
investors, whereas 30 (8.2%) of them are fund managers.

Table 1: Respondents’ Profiles

S/N Items Categories Frequency (n) Percentage

(%)
Male 246 67.2
1 Gender
Female 120 32.8
20-30 161 44.0
31-40 66 18.0
2 Age 41-50 63 17.2
50-60 56 15.3
>60 20 5.5
Non-graduate 41 11.2
Diploma holder 71 19.4
Level of
3 Degree holder 210 57.4
Education
Post-graduate degree
44 12.0
holder
Islam 108 29.5
Christianity 70 19.1
Religion
4 Buddhism 162 44.3
Affiliation
Hinduism 15 4.1
Others 11 3.0
Finance/accounting/
188 51.4
investment
Technical 78 21.3
5 Area Expertise
Academic 23 6.3
Business 36 9.8
Others 41 11.2
Malay 118 32.2
Chinese 233 63.7
6 Ethnicity
Indian 12 3.3
Others 3 0.8
Less than RM5,000 209 57.1
7 Monthly Income RM5,001-RM10,000 96 26.2
More than RM10,000 61 16.7

88
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

Fund Managers 30 8.2

8 Investor’s Type
Retail Investors 336 91.8
Sample size = 366

4.0 Analysis

This section presents the analyses performed on the data collected.

In the interest of readers, this section is divided into three subsections.
Firstly, the researchers focus on the investors’ confidence in the Malaysian
stock market; in this part, a bar chart prepared through Microsoft excel
is used. Secondly, the analyses performed on the investors’ religiosity
are shown. Finally, the third part of this section discusses the results
presented in the first part and second part in accordance with the literature
discussed in the section two – literature review.

4.1 Investors’ Confidence in the Malaysian Stock Market

As reiterated, the question used to assess the respondents’ confidence

in the Malaysian stock market was adopted from Shiller's (2015) high-
income individual investor questionnaire in the U.S. “the stock market is
the best investment avenue for long-term holders, who can just buy and
hold through the ups and downs of the market.” By standard, adopting
this question has enabled the investigators to reveal investors’ current
thinking and expectations towards the Malaysian stock market. In this
case, this question was incorporated into our questionnaire; having used
it to collect data from 366 Malaysian investors, the data were therefore
analyzed using SPSS and based on the result outputs, Figure I below was
developed through Microsoft excel.

Based on the data collected, the majority (148 = 40.4%) of the

investors are neutral about the statement that Malaysian stock market is
the best investment avenue for long-term holders, who can just buy and
hold through the ups and downs of the market. Approximately 27% (98)
agree, and almost 10% (29) strongly agree that Malaysian stock market
is the best investment avenue for long-term holders. In addition, 16.1%
(59) of them disagree, while 8.7% (32) of them strongly disagree with
the statement that Malaysian stock market is the best investment avenue,
who can just buy and hold through the ups and downs of the market.
Considering the 127 (34.7%) of the Malaysian investors who agree with
the above statement and 91 (24.8%) of them who disagree with such
statement; we can conclude, to certain extent, that stock market investors

89
 Islamic Fund And Wealth Management : A Way Forward

have confidence in the Malaysian stock market as a best investment

avenue in the country.

Figure 1: Investors’ Confidence in Malaysian Stock Market

4.2 Investors’ Religiosity during Investment Decision

Another important consideration in this section is investors’

religiosity during their investment decisions. As shown in Table 2, five
items (variables) are used to assess investors’ religiosity. The initial
descriptive statistics – mean, median, and standard deviation – performed
on the data solicited are presented in Table II. Since the researchers
consider mean scores below 3 to be disagree, 3 to be neutral, and above
3 to be agree (1←3→ 5); we can conclude that investors prefer to invest
in stocks of companies that are socially responsible (mean = 3.26), they
are also willing to invest in the stocks of companies that are engaged in
ethical businesses (mean = 3.48); and they would not invest in company
that religious edicts are issued against (mean = 3.04). However, they
disagreed with the statement that investment decisions must be adhered
to their religious teachings (mean = 2.87) as well as the statement that
they would immediately dispose stocks of companies against which
religious edicts are issued regardless whether in profit or loss (mean =
2.81).

Table 2: Investors’ Religiosity

Std.
Variables Mean Median
Deviation
My investment decisions must adhere to my
2.87 3.00 1.369
religious teachings.
I prefer to invest in stocks of companies that
3.26 3.00 1.161
are socially responsible.

90
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

I prefer to invest in stocks of companies that

3.48 4.00 1.141
are engaged in ethical businesses.
If religious edicts are issued by the religion’s
authority against any company, I would not 3.04 3.00 1.255
invest in such a company.
If religious edicts are issued by the religion’s
authority against any company, I would
2.81 3.00 1.205
immediately sell its stocks if it is in my
holding regardless whether in profit or loss.

Given the above results, the researchers proceed by categorizing investors

into three main groups – high religious group (n = 144), moderate
religious group (n = 101), and low religious group (n = 121). Having
done that, an independent one-way analysis of variance (ANOVA) was
used to ascertain whether there is significant difference between these
groups. The results therefore indicate that investors in each group differ
significantly from other investors in other groups, F (2, 363) = 3492.74,
p < 0.001. In addition, a Post hoc Scheffé multiple comparison indicates
that investors in the high category adhere to their religious teachings more
when making investment decisions (p = 0.001) compared to investors in
moderate (p = 0.001), and low (p = 0.001) category. This finding suggests
that some investors are more cautious of their religious teachings when
making investment decisions and as such, they consider their religious
teachings first before selecting any company for investment purposes.

Table 3: Mean Investors’ Religiosity Level during Investment Decision by Category

Category Mean Std. Dev. Std. Error 95% CI Mean

Category High (n = 144) 72.50 35.62 2.97 66.63 78.37
Category Moderate (n = 195.00 0.00 0.00 195.00 195.00
101)
Category Low (n = 121) 306.00 30.35 2.76 300.54 311.46
Note: CI = Confidence Interval; Std. Dev. = Standard Deviation.

4.3 Discussion of Findings

We have so far presented the analyses performed on the data
collected from stock market investors in Malaysia; we now turn to the
discussion of major findings in this part. Given that some investors
have remained neutral about the statement “the Malaysian stock market
is the best investment avenue for long-term holders, who can just buy
and hold through the ups and downs of the market”, and those who
agreed are larger compared to those who disagreed; we have forcefully

91
 Islamic Fund And Wealth Management : A Way Forward

concluded that stock market investors have confidence in the Malaysian

stock market as the best investment avenue. At the same time, however,
we have remained cautious in making this conclusion since we have
disregarded the actual thought of those investors who chose to remain
neutral in answering our questionnaires. Nevertheless, if we remained
adamant that stock market investors have confidence in the stock market
as the best investment avenue, based on the fact that those who agreed are
higher than those who disagreed, then our conclusion that stock market
investors have confidence in the Malaysian stock market is correct.

Even with this conclusion, we have called on authority to enhance

investors’ confidence in the Malaysian stock market. This is because
without confidence in this market, investors are less likely to buy stocks
or, buy less if conditional on buying stocks or, put their money elsewhere,
say fixed deposit (Guiso et al., 2008). This could also result into limited
participation in the Malaysian stock market. More so, this study has
also shown that confidence in stock market is important because lack
of investors’ confidence could lead to market pessimism which can
eventually impacting stock returns (Chen, 2011). Also, authorities should
focus on the event which can prevent investors’ confidence since such
event could influence buying and selling decisions, as well as liquidity
(Burnett, 2017; Sturm, 2003).

Furthermore, the researchers have also proved that religion is an
important variable that could influence investment decision in stock
market. Similar to Jaiyeoba and Haron (2016), Pitluck (2008), and
Renneboog and Spaenjers (2012), this study has shown that investors
who hold tight to their religious teachings are more courteous when
selecting companies for investment purposes. Moreover, we have also
demonstrated that being socially responsible is important to investors
before choosing company; also, companies that are engaging in ethical
businesses are favoured compared to their counterparts in unethical
business (Jaiyeoba, Adewale, & Quadry, 2018); more so, investors have
also demonstrated that they would not invest in any company against
which religious edicts are issued. As such, this study has supported
other similar studies, such as Barro and McCleary (2003), Abbes and
Abdelhédi-Zouch (2015), Gavriilidis, Kallinterakis and Tsalavoutas
(2014), Oguzsoy and Guven (2004), Canepa and Ibnrubbian (2014), and
Frieder and Subrahmanyam (2004), which document that investors’
faith could influence company selection for investment reasons.

92
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

5.0 Conclusion

The researchers have carried out this study to investigate investors’

confidence in the Malaysian stock market as well as to reveal investors’
religiosity during their investment decisions. To get the readers familiar
with these objectives, we have presented, especially in the first and second
sections, why investors’ confidence is important for proper functioning of
stock market; we have also offered pertinent discussion on why religion
(faith) has remained important consideration when making investment
decision. Subsequently, we presented how data were collected from 366
investors and procedures for data analysis. In truth, a section before this
has reported analysis performed on the data collected; it has also offered
relevant discussion on the major findings.

Based on the data collected, we have shown, overall, that investors

are confident in the Malaysian stock market as the best investment
avenue. Notably, we have forcefully arrived at this conclusion since
those investors who agreed to the statement used in this regard are higher
compared to those who disagreed with such statement. Also, we have
disregarded the actual thought of those investors who remained neutral
over the statement “the Malaysian stock market is the best investment
avenue for long-term holders, who can just buy and hold through the
ups and downs of the market”. In addition, we have found that investors
who strongly hold tight to their religious teachings are less likely to
select companies which are not complying with the requirements of
their religion for investment reasons. Results also showed that ethical
businesses and socially responsible are important consideration by stock
market investors during their investment decisions.

Overall, this study has shed more light to why investors’ confidence
is important for proper functioning of the Malaysian stock market; it has
also shown that religion remained an important variable which influence
investment decisions. Based on the findings, the researchers have offered
important implication for policymakers. In that, they have been provided
with adequate opportunity to understand why investors’ confidence
and faith should be taken seriously when making public decisions,
particularly on stock market. Thus, we have recommended that future
studies should incorporate more questions into their questionnaire on
investors’ confidence and religiosity; they could also consider more
sample size, mixed methods, as well as longitudinal data in order to
increase our understanding in this area of study.

93
 Islamic Fund And Wealth Management : A Way Forward

References
Abbes, M. B., & Abdelhédi-Zouch, M. (2015). Does Hajj Pilgrimage Affect the
Islamic Investor Sentiment? Research in International Business and
Finance, 35, 138–152.
Allen, D. E., & McGoun, E. G. (2001). Hedonic Investment. Financial Services
Review, 9(4), 389–403.
Barro, R. J., & McCleary, R. M. (2003). Religion and Economic Growth (No.
9682). Cambridge.
Braithwaite, F. D., & Kemp, S. (2007). Safe as Houses: Investor Confidence in
New Zealand. New Zealand Economic Papers, 41(2), 225–236.
Burnett, J. E. (2017). Liquidity and Investor Confidence in the Turn-of-the-
month Regularity. Applied Economics Letters, 24(4), 273–278.
Canepa, A., & Ibnrubbian, A. (2014). Does Faith Move Stock Markets? Evidence
from Saudi Arabia. Quarterly Review of Economics and Finance, 54(4),
538–550.
Chang, C. H., & Lin, S. J. (2015). The Effects of National Culture and Behavioral
Pitfalls on Investors’ Decision-Making: Herding Behavior in International
Stock Markets. International Review of Economics and Finance (Vol. 37).
Elsevier Inc.
Chen, S. S. (2011). Lack of Consumer Confidence and Stock Returns. Journal of
Empirical Finance, 18(2), 225–236.
Estes, R., & Hosseini, J. (1988). The Gender Gap on Wall Street: An Empirical
Analysis of Confidence in Investment Decision Making. Journal of
Psychology, 122(6), 577–590.
Farook, S. (2007). On Corporate Social Responsibility of Islamic Financial
Institutions. Islamic Economic Studies, 15(1), 31–46.
Fisher, K. L., & Statman, M. (2003). Consumer Confidence and Stock Returns.
The Journal of Portfolio Management, 30(1), 115–127.
Frieder, L., & Subrahmanyam, A. (2004). Nonsecular Regularities in Return and
Volume. Financial Analysts Journal, 60(4), 29–43.
Gavriilidis, K., Kallinterakis, V., & Tsalavoutas, I. (2014). Investor Mood,
Herding and the Ramadan Effect. Journal of Economic Behavior and
Organization, 1–16.
Goh, C. F., Rasli, A., & Khan, S. U. R. (2014). Stock Investors’ Confidence on
Low-cost and Traditional Airlines in Asia during Financial Crisis of 2007–
2009. Procedia - Social and Behavioral Sciences, 129, 31–38.
Guiso, L., Sapienza, P., & Zingales, L. (2003). People’s opium? Religion and
economic attitudes. Journal of Monetary Economics (Vol. 50).
Guiso, L., Sapienza, P., & Zingales, L. (2008). Trusting the Stock Market
Trusting the Stock Market. Journal of Finance, 63(602), 2557–2600.

94
 Investors’ Confidence in the Malaysian Stock Market and
Religiosity during Investment Decisions

Hess, D. W. (2012). The Impact of Religiosity on Personal Financial Decisions.

Journal of Religion & Society, 14, 1–13.
Hilary, G., & Hui, K. W. (2009). Does Religion Matter in Corporate Decision
Making in America? Journal of Financial Economics, 93(3), 455–473.
Holt, T. P., & DeZoort, T. (2009). The Effects of Internal Audit Report Disclosure
on Investor Confidence and Investment Decisions. International Journal of
Auditing, 13, 61–77.
Iannaccone, L. R. (1998). Introduction to the Economics of Religion. Journal of
Economic Literature, 36 (3), 1465–1495.
Jaiyeoba, H. B., Adewale, A. A., & Quadry, M. O. (2018). Are Malaysian
Islamic Banks’ Corporate Social Responsibities Effective? A Stakeholders’
View. International Journal of Bank Marketing, 36 (1), Article in Press.
Jaiyeoba, H. B., Adeyemi, A. A., Haron, R., & Che Ismail, C. M. H. (2018).
Investment Decision Behaviour of the Malaysian Retail Investors and Fund
Managers: A Qualitative Inquiry. Qualitative Research in Financial Markets,
10(2).
Jaiyeoba, H. B., & Haron, R. (2016). A Qualitative Inquiry into the Investment
Decision Behaviour of the Malaysian Stock Market Investors. Qualitative
Research in Financial Markets, 8(3), 246–267.
Jansen, W. J., & Nahuis, N. J. (2003). The Stock Market and Consumer
Confidence: European Evidence. Economics Letters, 79 (1), 89–98.
Jiang, F., Jiang, Z., Kim, K. A., & Zhang, M. (2015). Family-firm Risk-taking:
Does Religion Matter? Journal of Corporate Finance, 33, 260–278.
Keister, L. A. (2003). Religion and Wealth: The Role of Religious Affiliation and
Participation in Early Adult Asset Accumulation. Social Forces, 82 (1),
175–207.
Ko, K. J. (2017). Economics Note: Investor Confidence. Retrieved from https://
www.sec.gov/files/investor_confidence_noteOct2017.pdf
Kramer, M. M. (2016). Financial Literacy, Confidence and Financial Advice
Seeking. Journal of Economic Behavior and Organization, 131 (March
2013), 198–217.
Kumar, A. (2009). Who Gambles in the Stock Market? Journal of Finance, 64
(4), 1889–1933.
Lachowska, M. (2011). What Do Indexes of Consumer Confidence Tell Us?
Employment Research Newsletter, 18 (3), 1.
Lucey, B. M., & Zhang, Q. Y. (2010). Does Cultural Distance Matter in
International Stock Market Comovement? Evidence from Emerging
Economies around the World. Emerging Markets Review, 11 (1), 62–78.
Oguzsoy, C. B., & Guven, S. (2004). Holy Days Effect on Istanbul Stock
Exchange. Journal of Emerging Market Finance, 3 (1), 63–75.
Oxley, M. G. (2007). The Sarbanes-Oxley Act of 2002—Restoring Investor
Confidence. Current Issues in Auditing, 1(1), C1–C2.

95
 Islamic Fund And Wealth Management : A Way Forward

Pitluck, A. Z. (2008). Moral Behavior in Stock Markets: Islamic Finance and

Socially Responsible Investment. Retrieved from https://mpra.ub.uni-
muenchen.de/9477/1/MPRA_paper_9477.pdf
Ramirez, M. (2003). Just in Crime: Guiding Economic Crime Reform After the
Sarbanes-Oxley Act of 2002. Loyola University Chicago Law Journal, 34
(2), 359–427.
Renneboog, L., & Spaenjers, C. (2012). Religion, Economic Attitudes, and
Household Finance. Oxford Economic Papers, 64(1), 103–127.
Shaliastovich, I. (2015). Learning, Confidence, and Option Prices. Journal of
Econometrics, 187(1), 18–42.
Shiller, R. J. (2000). Measuring Bubble Expectations and Investor Confidence.
Journal of Psychology and Financial Markets, 1(1), 49–60.
Shiller, R. J. (2015). Irrational Exuberance (3rd ed.). New Jersey: Princeton
University Press.
Stout, L. A. (2002). The Investor Confidence Game. Brooklyn Law Review,
67(3), 407–437.
Sturm, R. R. (2003). Investor Confidence and Returns Following Large One-
Day Price Changes. Journal of Behavioral Finance, 4(4), 201–216.
Tarumizu, K. (1993). Fostering Investor Confidence in the Asian and Pacific
Capital Markets. Pacific-Basin Finance Journal, 1, 105–110.
Yang, S., Hsu, Y., & Tu, C. (2012). How Do Traders Influence Investor Confidence
and Trading Volume? A Dyad Study in the Futures Market. Emerging
Markets Finance and Trade, 48(0), 23–34.
Zhao, G. (2017). Confidence, Bond Risks, and Equity Returns. Journal of
Financial Economics.

96

View publication stats