Zaida Rizqi Zainul

Common market anomalies tested in developed markets have been considered adequate to explain behavior there. However, the different characteristics in emerging markets such as Indonesia make traditional asset pricing models inadequate. Furthermore, this study highlights the importance of integrating company fundamentals and investor sentiment. This study enriches the asset pricing method in Indonesia and supports the theory of market signals and anomalies. This study analyzes the moderating role of investor sentiment on the relationship between profitability premium, investment premium, and stock returns in one of the emerging markets, Indonesia. The study uses panel data from 93 companies in Indonesia from 2013 to 2023. Portfolio construction with the five-factor model is used. The analysis method used is moderated regression analysis or interaction testing. The study results show that profitability premium and excess return interact significantly with investor sentiment at the 1% level, so investment premium and excess return interact significantly with investor sentiment at the 1% level. This study shows that investor sentiment plays a role in strengthening the premiums for profitability and investment. The findings of this study indicate that considering a company’s financial condition and sentiment level is essential for investors and investment managers in implementing long-term stock investment analysis strategies in emerging markets such as Indonesia. This study can support market stability policies, such as tighter supervision, when negative sentiment has the potential to cause a decline in stock prices that is disproportionate to fundamentals.

Acknowledgments
The authors would like to thank the Indonesian Capital Market for providing data supporting this study’s results. Thanks also to the promoter, co-promoter, and reviewer for their suggestions and input, which were very helpful in preparing this article. In addition, the family has provided prayers and patience in supporting the author in carrying out this research. This research was supported by funding from Universitas Syiah Kuala.