Financial market connectedness : the role of investors' happiness

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Authors

Bouri, Elie
Demirer, Riza
Gabauer, David
Gupta, Rangan

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

We examine the relationship between investor sentiment and connectedness patterns across global stock markets within a quantile-on-quantile framework. Our findings show that investor happiness has a significant effect on both the return and volatility spillovers across global stock markets. While the sentiment effect is found to be relatively strong on volatility spillovers, we observe that the relationship between sentiment and connectedness is asymmetric for return and volatility connectedness. The findings suggest that both investors and policy makers should be particularly vigilant against sentiment shocks, in either direction, as these shocks can have significant risk effects, contributing to volatility spillovers globally.

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Keywords

Equity markets, Investor happiness, Time-varying parameter vector autoregressive (TVP-VAR), Dynamic connectedness, Quantile-on-quantile approach

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Citation

Bouri, E., Demirer, R., Gabauer, D. & Gupta, R. 2022, 'Financial market connectedness : the role of investors' happiness', Finance Research Letters, vol. 44, art. 102075, pp. 1-8, doi : 10.1016/j.frl.2021.102075.