Are crises sentimental?
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
Related Research Unit(s)
|Journal / Publication||International Journal of Finance and Economics|
|Online published||28 Jul 2020|
|Publication status||Published - Jan 2021|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-85088596117&origin=recordpage|
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.
- crisis prediction, financial crises, market sentiment