Sentiment, Productivity, and Economic Growth

37 Pages Posted: 20 Mar 2023 Last revised: 16 Apr 2023

See all articles by George M. Constantinides

George M. Constantinides

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Maurizio Montone

Utrecht University

Valerio Potì

University College Dublin

Stella Spilioti

Athens University of Economics and Business

Multiple version iconThere are 3 versions of this paper

Date Written: March 2023

Abstract

Previous research finds correlation between sentiment and future economic growth, but disagrees on the channel that explains this result. In this paper, we shed new light on this issue by exploiting cross-country variation in sentiment and market efficiency. We find that sentiment shocks in G7 countries increase economic activity, but only temporarily and without affecting productivity. By contrast, sentiment shocks in non-G7 countries predict prolonged economic growth and a corresponding increase in productivity. The results suggest that sentiment can indeed create economic booms, but only in less advanced economies where noisy asset prices make sentiment and fundamentals harder to disentangle.

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Suggested Citation

Constantinides, George M. and Montone, Maurizio and Potì, Valerio and Spilioti, Stella, Sentiment, Productivity, and Economic Growth (March 2023). NBER Working Paper No. w31031, Available at SSRN: https://ssrn.com/abstract=4393371 or http://dx.doi.org/10.2139/ssrn.4393371

George M. Constantinides (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Maurizio Montone

Utrecht University ( email )

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Utrecht, +31 30 253 7373 3584 EC
Netherlands

Valerio Potì

University College Dublin ( email )

M. Smurfit School of Business
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Dublin, Co Dublin
Ireland

HOME PAGE: http://https://people.ucd.ie/valerio.poti

Stella Spilioti

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

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