A Causality Analysis of Sentiment Investor, Macroeconomic Uncertainty, and Market Dynamics in Indonesia: Lessons for Investors Resilience and Market Sustainability

Abstract

This study integrates market factors, macroeconomics, and investor behavior to provide lessons for investor resilience and market sustainability. Using monthly Indonesian market and macroeconomic data from 2004–2024, and a quantitative approach through vector autoregression model, Granger causality, and impulse response to capture the interactions among variables. Results show that global economic uncertainty affects market response and vice versa. Likewise, investor behavior affects global economic uncertainty and vice versa. Macro-economic linkages also affect market response, investor behavior, and vice versa. Market response affects investor behavior but not vice versa. In addition, if there is a shock to macro-economic linkages, the impact will be convergent on investor behavior, but if there is a shock to investor behavior, it will not be convergent on market conditions. Highlight practical implication that markets are highly dependent on psychological factors of investors that interact with fundamental factors. Previous studies tend to isolate the influence of each variable, thereby overlooking the possibility that their interrelationships may produce simultaneous effects on market dynamics. Interdisciplinary approaches remain limited in the context of upper-middle-income countries. These results also provide lessons for the market and investors, if there is turmoil in investor resilience, affecting long-term sustainability of emerging capital markets.