Global contagion of market sentiment during the US subprime crisis

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

Global Finance Journal, 2014, vol. 25, issue 1, 17-26

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.

Keywords: Subprime crisis; Volatility indices; Market sentiment; Bivariate GARCH model (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:25:y:2014:i:1:p:17-26

DOI: 10.1016/j.gfj.2014.03.003

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