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The Role of Consumer Sentiment in the Stock Market: A Multivariate Dynamic Mixture Model With Threshold Effects

Author

Listed:
  • Zacharias Psaradakis
  • Francisco Rapetti
  • Martin Sola
  • Patricio Yunis

Abstract

We consider the relationship between stock prices, volatility and consumer sentiment. The analysis is based on a new multivariate model defined as a time‐varying mixture of dynamic models in which contemporaneous relationships among variables are allowed and the mixing weights have a threshold‐type structure. We discuss issues related to the stability of the model and the estimation of its parameters. Our empirical results show that consumer sentiment significantly affects the S&P 500 price–dividend ratio and market volatility in at least one of the model's two regimes, which are associated with endogenously determined low and high consumer sentiment.

Suggested Citation

  • Zacharias Psaradakis & Francisco Rapetti & Martin Sola & Patricio Yunis, 2025. "The Role of Consumer Sentiment in the Stock Market: A Multivariate Dynamic Mixture Model With Threshold Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 87(6), pages 1146-1157, December.
    • Handle: RePEc:bla:obuest:v:87:y:2025:i:6:p:1146-1157
    DOI: 10.1111/obes.12682
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    JEL classification:

    • 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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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