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Global contagion of market sentiment during the US subprime crisis

Author

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  • Lee, Yen-Hsien
  • Tucker, Alan L.
  • Wang, David K.
  • Pao, Hsin-Ting

Abstract

This paper investigates how global market sentiment propagates among the markets and how the interdependency through the propagation changes during the course of the US subprime crisis. We adopt a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, and use a sample of eight global markets: Japan, Korea, Taiwan, Belgium, Germany, Netherlands, UK, and the Eurozone in our investigation. Our results identify that: (1) a long-run equilibrium relationship existed between market sentiment in the US and other major global markets during the subprime crisis period; (2) a global contagion of market sentiment occurred from the US market on September 15, 2008 to Japan, Korea, Belgium, Germany, Netherlands, and the Eurozone; and (3) the major global markets are all interrelated.

Suggested Citation

  • Lee, Yen-Hsien & Tucker, Alan L. & Wang, David K. & Pao, Hsin-Ting, 2014. "Global contagion of market sentiment during the US subprime crisis," Global Finance Journal, Elsevier, vol. 25(1), pages 17-26.
    • Handle: RePEc:eee:glofin:v:25:y:2014:i:1:p:17-26
    DOI: 10.1016/j.gfj.2014.03.003
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    Cited by:

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    2. Shi, Yong & Tang, Ye-ran & Long, Wen, 2019. "Sentiment contagion analysis of interacting investors: Evidence from China’s stock forum," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 523(C), pages 246-259.
    3. Piñeiro-Chousa, Juan & López-Cabarcos, M. Ángeles & Šević, Aleksandar, 2022. "Green bond market and Sentiment: Is there a switching Behaviour?," Journal of Business Research, Elsevier, vol. 141(C), pages 520-527.
    4. Bekiros, Stelios & Jlassi, Mouna & Naoui, Kamel & Uddin, Gazi Salah, 2018. "Risk perception in financial markets: On the flip side," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 184-206.
    5. Zhou, Liyun & Huang, Jialiang, 2020. "Contagion of future-level sentiment in Chinese Agricultural Futures Markets," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    6. Xianfang Su & Yong Li, 2020. "Dynamic sentiment spillovers among crude oil, gold, and Bitcoin markets: Evidence from time and frequency domain analyses," PLOS ONE, Public Library of Science, vol. 15(12), pages 1-26, December.
    7. Isabel-María García-Sánchez & Víctor Amor-Esteban & Alejandra García-Sánchez, 2021. "Different Leaders in a COVID-19 Scenario: CEO Altruism and Generous Discourse," Sustainability, MDPI, vol. 13(7), pages 1-19, March.
    8. Zhou, Liyun & Huang, Jialiang, 2020. "Excess co-movement of agricultural futures prices: Perspective from contagious investor sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    9. Shah Saeed Hassan Chowdhury, 2023. "Spillover of Sentiments Between the GCC Stock Markets," Global Business Review, International Management Institute, vol. 24(6), pages 1434-1453, December.
    10. Daniel Perez-Liston & Daniel Huerta-Sanchez & Juan Gutierrez, 2018. "Do Domestic Sentiment and the Spillover of US Investor Sentiment Impact Mexican Stock Market Returns?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(2_suppl), pages 185-212, August.
    11. Quah, Chee-Heong & Ho, Yew-Joe, 2020. "Economic Feasibility of Malaysia and Singapore-Brunei Monetary Reunion: A Scrutiny during Major Financial Crises," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 27(1).
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    13. Bruce Q. Budd, 2018. "The transmission of international stock market volatilities," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 155-173, January.

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    More about this item

    Keywords

    Subprime crisis; Volatility indices; Market sentiment; Bivariate GARCH model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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