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The relationship between emerging and developed market sentiment: A wavelet-based time-frequency analysis

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  • Dash, Saumya Ranjan
  • Maitra, Debasish

Abstract

This paper examines the causal relationship between developed and emerging market sentiment. Our analysis also extends to test whether the causality effect between developed and emerging market investor sentiment translates into significant implication for equity returns. Results reveal that in the short-run emerging market sentiment is not correlated with any developed market sentiment. In the long-run, a strong correlation is observed between emerging and developed market sentiment (US sentiment). The US and Europe sentiment affect emerging market sentiment both in the short and long-run. Emerging markets affect the US and Europe sentiment only in the long-run. The bidirectional causality between emerging market and developed market (the US and Europe) sentiment in the long-run suggests that sentiments index of two economies may feed on each other during crisis periods. The coherency tests suggest that the sentiment contagion effect between developed and emerging market is intensified during crisis periods.

Suggested Citation

  • Dash, Saumya Ranjan & Maitra, Debasish, 2019. "The relationship between emerging and developed market sentiment: A wavelet-based time-frequency analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 135-150.
    • Handle: RePEc:eee:beexfi:v:22:y:2019:i:c:p:135-150
    DOI: 10.1016/j.jbef.2019.02.006
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    6. Mbarki, Imen & Omri, Abdelwahed & Naeem, Muhammad Abubakr, 2022. "From sentiment to systemic risk: Information transmission in Asia-Pacific stock markets," Research in International Business and Finance, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Investor sentiment; Stock returns; Contagion; Causality; Emerging market; Wavelet analysis;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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