IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i12p569-d1546914.html
   My bibliography  Save this article

The Spillover Effects of Market Sentiments on Global Stock Market Volatility: A Multi-Country GJR-GARCH-MIDAS Approach

Author

Listed:
  • Sarula Bai

    (College of Economics and Trade, China School of Business and Economics, Xingyi Normal University for Nationalities, Xingyi 562400, China
    School of Business and Economics, Dankook University, Yongin 16890, Republic of Korea)

  • Jaewon Jung

    (School of Business and Economics, Dankook University, Yongin 16890, Republic of Korea
    THEMA, CY Cergy Paris University, 95011 Cergy, France)

  • Shun Li

    (College of Finance and Economics, Qingdao Binhai University, Qingdao 266555, China)

Abstract

In behavioral economics, it has widely been documented that there might be a close relationship between overall market sentiment and economic performance, such as GDP per capita. In this paper, we investigate the effects of market sentiment on stock market volatility, which has widely been recognized as an important factor for economic sustainability. In particular, we aim to identify the existence of spillover effects of market sentiments on global stock market volatility. As a first attempt, we chose ten countries from major economic regions over the world (including America, Asia, Europe, and Oceania), and analyzed their interdependence and interconnectedness using a GJR-GARCH-MIDAS model. The results highlight that an individual country’s stock market volatility is significantly influenced not only by its own market sentiment (proxied by the consumer confidence index) but also by the overall market sentiments of other countries across the world. The results also highlight significant country-by-country heterogeneity in the time lags of the global spillover effects, which indicates substantial heterogeneity in the behavioral dynamics of individual countries.

Suggested Citation

  • Sarula Bai & Jaewon Jung & Shun Li, 2024. "The Spillover Effects of Market Sentiments on Global Stock Market Volatility: A Multi-Country GJR-GARCH-MIDAS Approach," JRFM, MDPI, vol. 17(12), pages 1-23, December.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:569-:d:1546914
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/12/569/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/12/569/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Baker, Malcolm & Wurgler, Jeffrey & Yuan, Yu, 2012. "Global, local, and contagious investor sentiment," Journal of Financial Economics, Elsevier, vol. 104(2), pages 272-287.
    2. Lee, Wayne Y. & Jiang, Christine X. & Indro, Daniel C., 2002. "Stock market volatility, excess returns, and the role of investor sentiment," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2277-2299.
    3. Heij, Christiaan & van Dijk, Dick & Groenen, Patrick J.F., 2011. "Real-time macroeconomic forecasting with leading indicators: An empirical comparison," International Journal of Forecasting, Elsevier, vol. 27(2), pages 466-481, April.
    4. Abdollahi, Hooman & Fjesme, Sturla L. & Sirnes, Espen, 2024. "Measuring market volatility connectedness to media sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    6. Wang, Wenzhao & Su, Chen & Duxbury, Darren, 2021. "Investor sentiment and stock returns: Global evidence," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 365-391.
    7. Ding, David K. & Charoenwong, Charlie & Seetoh, Raymond, 2004. "Prospect theory, analyst forecasts, and stock returns," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 425-442.
    8. Mustafa Sayim & Hamid Rahman, 2015. "The relationship between individual investor sentiment, stock return and volatility," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 10(3), pages 504-520, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Deven Bathia & Don Bredin & Dirk Nitzsche, 2016. "International Sentiment Spillovers in Equity Returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 332-359, October.
    2. Nizar Raissi & Sahbi Missaoui, 2015. "Role of investor sentiment in financial markets: an explanation by behavioural finance approach," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(4), pages 362-401.
    3. Di, Li & Shaiban, Mohammed Sharaf & Hasanov, Akram Shavkatovich, 2021. "The power of investor sentiment in explaining bank stock performance: Listed conventional vs. Islamic banks," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    4. Wang, Wenzhao & Su, Chen & Duxbury, Darren, 2022. "The conditional impact of investor sentiment in global stock markets: A two-channel examination," Journal of Banking & Finance, Elsevier, vol. 138(C).
    5. Keunbae Ahn, 2021. "Predictable Fluctuations in the Cross-Section and Time-Series of Asset Prices," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2021, January-A.
    6. Giofré, Maela, 2022. "Foreign investment in times of COVID-19: How strong is the flight to advanced economies?," Journal of Multinational Financial Management, Elsevier, vol. 64(C).
    7. Yousaf, Imran & Youssef, Manel & Goodell, John W., 2022. "Quantile connectedness between sentiment and financial markets: Evidence from the S&P 500 twitter sentiment index," International Review of Financial Analysis, Elsevier, vol. 83(C).
    8. Leilane de Freitas Rocha Cambara & Roberto Meurer, 2023. "News sentiment and foreign portfolio investment in Brazil," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3332-3348, July.
    9. Li, Jinfang, 2014. "Multi-period sentiment asset pricing model with information," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 118-130.
    10. Rama Krishna Yelamanchili, 2019. "Impact of Consumer Sentiment on Defensive and Aggressive Stock Returns: Indian Evidence," International Journal of Economics and Financial Issues, Econjournals, vol. 9(4), pages 109-114.
    11. Klein, Arne C., 2013. "Time-variations in herding behavior: Evidence from a Markov switching SUR model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 291-304.
    12. Siganos, Antonios & Vagenas-Nanos, Evangelos & Verwijmeren, Patrick, 2014. "Facebook's daily sentiment and international stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 730-743.
    13. Yao Zheng & Eric Osmer, 2018. "The Relationship between Hedge Fund Performance and Stock Market Sentiment," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-29, September.
    14. Al-Nasseri, Alya & Menla Ali, Faek & Tucker, Allan, 2021. "Investor sentiment and the dispersion of stock returns: Evidence based on the social network of investors," International Review of Financial Analysis, Elsevier, vol. 78(C).
    15. Wang, Wenzhao & Duxbury, Darren, 2021. "Institutional investor sentiment and the mean-variance relationship: Global evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 415-441.
    16. Mehmet Balcilar & Rangan Gupta & Clement Kyei, 2018. "Predicting Stock Returns And Volatility With Investor Sentiment Indices: A Reconsideration Using A Nonparametric Causality†In†Quantiles Test," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 74-87, January.
    17. Aissia, Dorsaf Ben, 2016. "Home and foreign investor sentiment and the stock returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 71-77.
    18. Liang, Hanchao & Yang, Chunpeng & Cai, Chuangqun, 2017. "Beauty contest, bounded rationality, and sentiment pricing dynamics," Economic Modelling, Elsevier, vol. 60(C), pages 71-80.
    19. Ramiah, Vikash & Xu, Xiaoming & Moosa, Imad A., 2015. "Neoclassical finance, behavioral finance and noise traders: A review and assessment of the literature," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 89-100.
    20. 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.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:569-:d:1546914. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.