Global Contagion of Market Sentiment During the US Subprime Crisis

12 Pages Posted: 21 Mar 2014 Last revised: 14 Sep 2021

See all articles by Yen-Hsien Lee

Yen-Hsien Lee

Chung Yuan Christian University

Alan L. Tucker

Pace University - Lubin School of Business

David K. Wang

National University of Kaohsiung

Hsin-Ting Pao

Independent

Date Written: February 1, 2014

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.

Keywords: Subprime crisis, Volatility indices, Market sentiment, Bivariate GARCH model

JEL Classification: G12, G13

Suggested Citation

Lee, Yen-Hsien and Tucker, Alan L. and Wang, David K. and Pao, Hsin-Ting, Global Contagion of Market Sentiment During the US Subprime Crisis (February 1, 2014). Global Finance Journal (2014), Available at SSRN: https://ssrn.com/abstract=2406243

Yen-Hsien Lee

Chung Yuan Christian University ( email )

22 Pu-Jen, Pu-chung Li
Chung-Li, 32023
Taiwan

Alan L. Tucker (Contact Author)

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

David K. Wang

National University of Kaohsiung ( email )

Kaohsiung, 811
Taiwan

Hsin-Ting Pao

Independent ( email )

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