Based on Malaysia’s Prime Minister Invest Malaysia 2008 Conference held on 25 March 2008, Malaysia government has announced that effective from 3 August 2009 Malaysia’s capital market structure has undergone three main changes including new board structures, new regulatory approaches, and new guidelines and listing rules for IPO market. In view of such changes, the perception of investors towards stock valuation could have changed (Loughran, T., Ritter, J.: Why has IPO underpricing changed over time? Working paper at the Chicago NBER behavioral finance, 2004). This study examines the predictability of price-earnings (P/E) during the changes of the capital market structure in the Malaysian IPO market. This study focuses on how fundamental and sentiment factors drive variations in P/E and evaluates the role of P/E in IPO underpricing across different sub-periods. Employing multiple and quantile regression models, the findings align with (Shiller in American Economic Review 80:58–62, 1990) fads theory, highlighting the relationship between P/E and market sentiment. This study contributes to the literature by analysing market sentiment from a comparative perspective. It contrasts single-variable sentiment proxies with the Malaysian IPO Market Sentiment Index, constructed using Principal Component Analysis, Scaled Principal Component Analysis, and Partial Least Squares methods. The insights gained are valuable for investors and regulators, offering guidance on interpreting P/E fluctuations as indicators of economic fundamentals or shifts in market sentiment.