International Sentiment Spillovers in Equity Returns

International Journal of Finance and Economics, Forthcoming

Posted: 25 Nov 2016

See all articles by Deven Bathia

Deven Bathia

Queen Mary University of London

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance

Dirk Nitzsche

City University London - Sir John Cass Business School

Date Written: February 01, 2016

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.

Keywords: investor sentiment, international financial markets, vector autoregression, equity spillovers, international stock returns

JEL Classification: G14, G15

Suggested Citation

Bathia, Deven and Bredin, Don and Nitzsche, Dirk, International Sentiment Spillovers in Equity Returns (February 01, 2016). International Journal of Finance and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2874285

Deven Bathia (Contact Author)

Queen Mary University of London ( email )

The Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance ( email )

School of Business
Blackrock, Co. Dublin, 4
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff_bredin.html

Dirk Nitzsche

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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