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The cross-country importance of global sentiments—evidence for smaller EU countries

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  • Joscha Beckmann

    ()

  • Ansgar Belke

    ()

  • Michael Kühl

    ()

Abstract

This paper examines the importance of the economic sentiments of some macroeconomic key variables in Estonia, Slovenia and Latvia. We analyze the importance of domestic as well as foreign sentiments with respect to these economies against the background of their accession to the European Monetary Union. For this purpose, we develop and apply a framework which is based on a restricted autoregressive model. We focus on two issues: firstly, we investigate the relationship between domestic stock prices, income and sentiments; and, secondly, we take external effects stemming from EMU and US share prices and sentiments into account. Our results show that European sentiments are important for income and domestic sentiments. Furthermore, we are able to establish linkages between global share prices and domestic income. From a more general perspective, we find a significant positive influence stemming from (domestic) share prices on sentiments in Estonia and Latvia, and also find evidence for an inverse relationship in Latvia. Copyright Springer-Verlag 2012

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File URL: http://hdl.handle.net/10.1007/s10368-012-0216-5
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Bibliographic Info

Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 9 (2012)
Issue (Month): 3 (September)
Pages: 245-264

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Handle: RePEc:kap:iecepo:v:9:y:2012:i:3:p:245-264

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Web page: http://www.springerlink.com/link.asp?id=111059

Related research

Keywords: Cointegration; European integration; Financial markets; Restricted autoregressive model; Sentiments; E44; G15; P2;

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  1. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, 08.
  2. Joscha Beckmann & Ansgar Belke & Michael Kühl, 2011. "Global Integration of Central and Eastern European Financial Markets—The Role of Economic Sentiments," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 137-157, 02.
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  9. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  10. Gabrisch, Hurbert & Orlowski, Lucjan, 2009. "Interest Rate Convergence in the Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Working Papers 2009001, Sacred Heart University, John F. Welch College of Business.
  11. Klaus Weyerstrass & Reinhard Neck, 2008. "Macroeconomic Consequences of the Adoption of the Euro: The Case of Slovenia," International Advances in Economic Research, Springer, vol. 14(1), pages 1-10, February.
  12. Niek J. Nahuis & W. Jos Jansen, 2003. "Which Survey Indicators Are Useful for Monitoring Consumption? Evidence fron European Countries," Macroeconomics 0309013, EconWPA.
  13. Schmeling, Maik, 2008. "Investor sentiment and stock returns: Some international evidence," Hannover Economic Papers (HEP) dp-407, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  14. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
  15. E. Philip Howrey, 2001. "The Predictive Power of the Index of Consumer Sentiment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 175-216.
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