International Sentiment Spillovers in Equity Returns
International Journal of Finance and Economics, Forthcoming
Posted: 25 Nov 2016
Date Written: February 01, 2016
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.
Keywords: investor sentiment, international financial markets, vector autoregression, equity spillovers, international stock returns
JEL Classification: G14, G15
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