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Market illiquidity (1LQ) and investor sentiment (IS) show a significant role in Malaysian capital market, the variation of average stock returns left
unexplained by capital asset pricing model is covered effectively by ILQ and sentiment risks. Our IS measure consists of six market proxies. This study
tests pricing implications using size, liquidity and BM ranked portfolios. It finds that small and illiquid stocks are exposed more to sentiment risk.
ILQ and sentiment factors jointly explain the variations explained by size and value effects. Furthermore, quantile regressions reveal an asymmetric
influence of IS, a large (small) effect is observed on stocks with high (low) returns. A three factor model directed at capturing ILQ and IS risks is
apparently persuasive in this market
