THE FUTURE OF INDONESIA ISLAMIC BANKS: SENTIMENT CYCLES, FUNDAMENTALS, AND MARKET MATURATION
Article Sidebar
-
Islamic banking, investor sentiment, Sharia stock index, behavioral finance, Indonesia
Abstract
Islamic banking in Indonesia has expanded rapidly in recent years, yet its market share remains modest at about 8% of national banking assets. Investor sentiment – the general mood or attitude of investors not fully justified by fundamentalsa may significantly influence this sector’s growth and stock performance. This study examines investor sentiment toward Islamic banking by focusing on Indonesia’s Islamic stock indices and the largest Islamic bank, Bank Syariah Indonesia (BSI). We utilize a mixed-method approach combining stock market data analysis with an Autoregressive Distributed Lag (ARDL) regression model to capture both short- and long-run effects. Daily price data from late 2022 to 2025 for BSI (stock code BRIS) and Islamic indices (Indonesia Sharia Stock Index – ISSI, and Jakarta Islamic Index – JII) are analyzed alongside a sentiment proxy (the Consumer Confidence Index) to assess sentiment impacts on returns and volatility. The results reveal that investor sentiment has a significant positive influence on Islamic bank stock performance and contributes to heightened volatility. BSI’s stock, in particular, shows strong sentiment-driven fluctuations, aligning with evidence that Islamic equities are not immune to speculative behavior. These findings highlight the importance of investor psychology in Islamic finance and suggest that even in a Sharia-compliant context, market sentiment can drive pricing dynamics. Strengthening investor education and transparency in Islamic banking is recommended to ensure market stability.
Full text article
References
Ahmad, M. (2024). The role of cognitive heuristic-driven biases in investment management activities and market efficiency: A research synthesis. International Journal of Emerging Markets, 19(2), 273–321.
Al Hashfi, R. U., & Naufa, A. M. (2021). Are Islamic stocks less exposed to sentiment-based mispricing than non-Islamic ones? Evidence from the Indonesian stock exchange. Journal of Islamic Monetary Economics and Finance, 7(1), 59–88.
Aloui, C., Shahzad, S. J. H., Ferrer, R., & Jammazi, R. (2021). On the investors’ sentiments and the Islamic stock–bond interplay across investment horizons. Pacific-Basin Finance Journal, 65, https://doi.org/101476 10.31002/rn.v5i2.5609
Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–152 , https://doi.org/0.1257/jep.21.2.129
Baker, M., & Wurgler, J. (2012). Global, local, and contagious investor sentiment. Journal of Financial Economics, 104(2), 272–287.
Bank Syariah Indonesia (BSI). (2023). Annual Report 2022. Jakarta: PT Bank Syariah Indonesia Tbk. (Data on BSI financial performance and profit growth) cibafi.org.
Danila, N., Kamaludin, K., Sundarasen, S., & Bunyamin, B. (2021). Islamic index market sentiment: Evidence from the ASEAN market. Journal of Islamic Accounting and Business Research, 12(3), 380–400. https://doi.org/10.1108/JIABR-05-2020-0166
Financial Services Authority (OJK). (2023). Indonesian Islamic Financial Development Report 2023. OJK, Jakarta
Firdaus, M. M., Irwaningtyas, P., & Sukmaningrum, P. S. (2023). Investor sentiments, the COVID-19 pandemic and Islamic stock return volatility in Indonesia. ISRA International Journal of Islamic Finance, 15(2), https://doi.org/293–312 10.31002/rn.v5i2.5609
Kresnaputra, H. Y., & Kafabih, A. (2025). Studying investor rationality on stock price: A case of Bank Syariah Indonesia. Jurnal Ekonomi & Keuangan Islam, 11(1), 100–114 https://doi.org/10.20885/JEKI.vol11.iss1.art7
Li, D., Shaiban, M., & Hasanov, A. S. (2021). The power of investor sentiment in explaining bank stock performance: Listed conventional vs. Islamic banks. Pacific-Basin Finance Journal, 66, 101509 https://doi.org/10.1016/j.pacfin.2021.101509
Li, Y., Bu, H., Chen, B., & Sha, X. (2020). The role of text-extracted investor sentiment in Chinese stock price prediction with the enhancement of deep learning. International Journal of Forecasting, 36(4), 1541–1568.
Pranata, R. M., Jamaludin, A., Nandang, N., & Wanta, W. (2025). Investor sentiment and herding in Islamic stocks: An exploration of the moderating role of market capitalization. Journal of Accounting and Investment, 26(2), 367–386 http://dx.doi.org/10.18196/jai.v26i2.25951
Qiu, L., & Welch, I. (2006). Investor sentiment measures (NBER Working Paper No. 10794). National Bureau of Economic Research.
Sana, S., & Tauseef, S. (2020). Sentiment and stock returns: A case for conventional and Islamic equities in Pakistan. Business & Economic Review, 12(3), 1–22. https://doi.org/10.31002/rn.v5i2.5609
Spilioti, S. N. (2016). Does the sentiment of investors explain differences between predicted and realized stock prices? Studies in Economics and Finance, 33(4), 671–682.
Tulasmi, T., & Sawitri, S. (2022). Impact of investor sentiment, exchange rates, and foreign capital flow on Jakarta Islamic Index stock returns. Journal of Islamic Economics Lariba, 8(2), 149–164.
Yudhistira, Y., & Talita, A. S. (2024). Analyzing public sentiment towards BSI service disruptions through X: Naïve Bayes algorithm. Sinkron: Jurnal dan Penelitian Teknik Informatika, 8(3), 1651–1662 https://doi.org/10.33395/sinkron.v8i3.13729
Zulfiqar, B., & Farooq, O. (2021). Are Islamic stocks immune to global investor sentiment? Journal of Islamic Monetary Economics and Finance, 7(3), 559–584.
Authors
Copyright (c) 2025 Muhammad Rijal Alim Rahmat, Nina Anis
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
