Investor Sensitivity to Market Risks: A Comparison of Developed and Developing Countries

This study investigates investor sentiment in response to market risks by comparing five developed and five developing countries, selected in accordance with the 2024 country classification by the Financial Times Stock Exchange (FTSE), under the constraint of data availability. Periods of global economic crises and heightened uncertainty substantially influence individual saving and investment behaviors. Utilizing key indicators of market risk, namely Credit Default Swap (CDS) premiums and the Volatility Index (VIX), the study employs panel data analysis to examine their impact on national savings rates. Due to the temporal limitations associated with financial literacy data, the Human Development Index (HDI) is incorporated into the analysis as a proxy variable representing individuals’ economic behavior and decision-making capacity. Covering the period from 2009 to 2023, the empirical findings reveal that rising market risks are associated with declining saving rates in both developed and developing economies. Moreover, HDI is found to exert a statistically significant influence on saving decisions. These results challenge the assumptions of traditional economic models grounded in rational agent behavior, underscoring instead the relevance of behavioral economic frameworks that account for psychological and cognitive factors such as perception biases, overconfidence, and heuristics in savings behavior. Additionally, the findings suggest that investor sentiment in developing countries is more volatile and may be influenced by lower levels of financial literacy. The study concludes that during periods of elevated uncertainty, policy effectiveness can be enhanced not only through conventional monetary and fiscal instruments but also via transparent communication strategies and expectation management mechanisms aimed at stabilizing investor sentiment.