International Sentiment Spillovers in Equity Returns

Bathia, D., Bredin, D. & Nitzsche, D. (2016). International Sentiment Spillovers in Equity Returns. International Journal of Finance and Economics, 21(4), pp. 332-359. doi: 10.1002/ijfe.1549

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Abstract

This paper examines the extent of spillovers from US investor sentiment on G7 aggregate market, value and growth stock returns. As a proxy for investor sentiment, we include individual investor survey, measured by the University of Michigan consumer confidence index and market sentiment measured by Baker and Wurgler composite sentiment index. Using monthly data for the period January 1991 to December 2013, our results indicate the presence of significant spillover effects of US investor sentiment on G7 stock returns. Our findings from generalized impulse response functions show that aggregate market and growth stocks of all non-US G7 countries are significantly affected by the propagation of the US market sentiment. The financial crisis of 2007 has played a significant role in affecting value stock returns in these countries. Our findings further reveal that both the rational and irrational components of the US individual investor sentiment do not play any significant role in affecting international stock returns.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Bathia, D., Bredin, D., and Nitzsche, D. (2016) International Sentiment Spillovers in Equity Returns. Int. J. Fin. Econ., 21: 332–359., which has been published in final form at http://dx.doi.org/10.1002/ijfe.1549. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Uncontrolled Keywords: Investor sentiment, International Financial Markets, Vector autoregression
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/16133

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