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Financial market connectedness: The role of investors’ happiness

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  • Bouri, Elie
  • Demirer, Riza
  • Gabauer, David
  • Gupta, Rangan

Abstract

We examine the relationship between investor sentiment and connectedness patterns across global stock markets within a quantile-on-quantile framework. Our findings show that investor happiness has a significant effect on both the return and volatility spillovers across global stock markets. While the sentiment effect is found to be relatively strong on volatility spillovers, we observe that the relationship between sentiment and connectedness is asymmetric for return and volatility connectedness. The findings suggest that both investors and policy makers should be particularly vigilant against sentiment shocks, in either direction, as these shocks can have significant risk effects, contributing to volatility spillovers globally.

Suggested Citation

  • Bouri, Elie & Demirer, Riza & Gabauer, David & Gupta, Rangan, 2022. "Financial market connectedness: The role of investors’ happiness," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001562
    DOI: 10.1016/j.frl.2021.102075
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    Cited by:

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    More about this item

    Keywords

    Equity Markets; Investor Happiness; TVP-VAR; Dynamic Connectedness; Quantile-on-Quantile Approach;
    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)

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