Are crises sentimental?

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

1 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)962-985
Journal / PublicationInternational Journal of Finance and Economics
Volume26
Issue number1
Online published28 Jul 2020
Publication statusPublished - Jan 2021

Abstract

This paper examines the role of investor sentiment in signaling the onset of equity crises in a panel of over 50 countries. We find that although poor economic fundamentals are significant determinants of the vulnerability of countries, a shift from bullish to bearish investor sentiment acts as the final trigger. Bearish investor sentiment in regional and local markets exhibits significant predictive power for the outbreak of equity crises in the subsequent one to eight quarters, beyond that forecasted by pure economic fundamentals. The results remain broadly unchanged even after we orthogonalize the sentiment indices to information about economic fundamentals. © 2020 John Wiley & Sons, Ltd.

Research Area(s)

  • crisis prediction, financial crises, market sentiment

Citation Format(s)

Are crises sentimental? / Chen, Tao; So, Erin P. K.; Yan, Isabel K. M.
In: International Journal of Finance and Economics, Vol. 26, No. 1, 01.2021, p. 962-985.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review