Global Echoes: The Ripple Effect of Investor Sentiment in International Markets

45 Pages Posted: 17 Oct 2024

See all articles by Mohammad Najand

Mohammad Najand

Old Dominion University - Finance

Amin Amoulashkarian

affiliation not provided to SSRN

Mobina Shafaati

Old Dominion University

Abstract

This study investigates the impact of U.S. investor sentiment on the stock returns of the G7 countries, excluding the United States, over the period from January 1, 1998, to December 31, 2021. Utilizing sentiment measures from the Thomson Reuters MarketPsych Indices (TRMI), which capture the sentiment of news articles and social media posts, we model the transmission of sentiment across international markets using Vector Autoregression (VAR), Structural Equation Modeling (SEM), and Multivariate GARCH models. Our findings reveal that U.S. investor sentiment significantly influences the stock returns of other G7 countries, with positive sentiment generally leading to increased returns, while negative sentiment has the opposite effect. However, the extent of this influence varies across markets, reflecting the complex interdependencies of global financial systems. The analysis also highlights that the impact of U.S. sentiment can shift over time, particularly in response to major economic events like the global financial crisis. This research contributes to the understanding of global financial market dynamics by emphasizing the role of sentiment in shaping international stock market returns. It offers valuable insights for investors, policymakers, and financial market participants, demonstrating the need to consider sentiment indicators when evaluating global market movements.

Keywords: investor sentiment, Sentiment Transmission, G7, Multivariate Dynamic Analysis

Suggested Citation

Najand, Mohammad and Amoulashkarian, Amin and Shafaati, Mobina, Global Echoes: The Ripple Effect of Investor Sentiment in International Markets. Available at SSRN: https://ssrn.com/abstract=4990931 or http://dx.doi.org/10.2139/ssrn.4990931

Mohammad Najand (Contact Author)

Old Dominion University - Finance ( email )

School of Business and Public Administration
Norfolk, VA 23529-0222
United States
757-683-3509 (Phone)
757-683-5639 (Fax)

Amin Amoulashkarian

affiliation not provided to SSRN ( email )

No Address Available

Mobina Shafaati

Old Dominion University ( email )

2168 Constant Hall
Norfolk, VA 23529-0222
United States

HOME PAGE: http://mobinashafaati.com

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