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Global contagion of market sentiment during the US subprime crisis

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  • Lee, Yen-Hsien
  • Tucker, Alan L.
  • Wang, David K.
  • Pao, Hsin-Ting
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    Abstract

    This paper investigates how global market sentiment propagates among the markets and how the interdependency through the propagation changes during the course of the US subprime crisis. We adopt a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, and use a sample of eight global markets: Japan, Korea, Taiwan, Belgium, Germany, Netherlands, UK, and the Eurozone in our investigation. Our results identify that: (1) a long-run equilibrium relationship existed between market sentiment in the US and other major global markets during the subprime crisis period; (2) a global contagion of market sentiment occurred from the US market on September 15, 2008 to Japan, Korea, Belgium, Germany, Netherlands, and the Eurozone; and (3) the major global markets are all interrelated.

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    Bibliographic Info

    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 25 (2014)
    Issue (Month): 1 ()
    Pages: 17-26

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    Handle: RePEc:eee:glofin:v:25:y:2014:i:1:p:17-26

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    Web page: http://www.elsevier.com/locate/inca/620162

    Related research

    Keywords: Subprime crisis; Volatility indices; Market sentiment; Bivariate GARCH model;

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