The South African Fear and Greed Index and Its Connectedness to the U.S. Index

This study investigates the cross-country spillover effects of investor sentiment, specifically Fear and Greed, between the United States and South Africa, within the broader context of increasing global financial integration and behavioral finance. Using monthly data from June 2007 to June 2024, this research constructs and tests the validity of a South African Fear and Greed Index, adapted from CNN’s U.S.-centric index, to better capture the unique dynamics and contribute to an alternate sentiment index for an emerging market. Employing the Diebold and Yilmaz (DY) connectedness framework, this study quantifies both static and dynamic spillover effects via a vector autoregression-based variance decomposition model. The results reveal significant bidirectional sentiment transmission, with the U.S. acting as a dominant net transmitter and South Africa as a net receiver, along with notable cross-country effects closely linked to the global economic trend. Spillover intensity escalates during periods of global economic stress, such as the 2008 financial crisis and the COVID-19 pandemic. The findings highlight that the USA significantly influences South Africa and that the adapted SA Fear and Greed Index better accounts for South African market conditions.