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Global contagion of market sentiment during the US subprime crisis

Author

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

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.

Suggested Citation

  • Lee, Yen-Hsien & Tucker, Alan L. & Wang, David K. & Pao, Hsin-Ting, 2014. "Global contagion of market sentiment during the US subprime crisis," Global Finance Journal, Elsevier, vol. 25(1), pages 17-26.
  • Handle: RePEc:eee:glofin:v:25:y:2014:i:1:p:17-26
    DOI: 10.1016/j.gfj.2014.03.003
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    References listed on IDEAS

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    Cited by:

    1. Ding, Zhihua & Liu, Zhenhua & Zhang, Yuejun & Long, Ruyin, 2017. "The contagion effect of international crude oil price fluctuations on Chinese stock market investor sentiment," Applied Energy, Elsevier, vol. 187(C), pages 27-36.
    2. repec:eee:finana:v:57:y:2018:i:c:p:184-206 is not listed on IDEAS
    3. repec:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9391-0 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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