The Spillover Effects of Market Sentiments on Global Stock Market Volatility: A Multi-Country GJR-GARCH-MIDAS Approach

Sarula Bai, Jaewon Jung () and Shun Li
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Sarula Bai: College of Economics and Trade, China School of Business and Economics, Xingyi Normal University for Nationalities, Xingyi 562400, China
Jaewon Jung: School of Business and Economics, Dankook University, Yongin 16890, Republic of Korea
Shun Li: College of Finance and Economics, Qingdao Binhai University, Qingdao 266555, China

JRFM, 2024, vol. 17, issue 12, 1-23

Abstract: In behavioral economics, it has widely been documented that there might be a close relationship between overall market sentiment and economic performance, such as GDP per capita. In this paper, we investigate the effects of market sentiment on stock market volatility, which has widely been recognized as an important factor for economic sustainability. In particular, we aim to identify the existence of spillover effects of market sentiments on global stock market volatility. As a first attempt, we chose ten countries from major economic regions over the world (including America, Asia, Europe, and Oceania), and analyzed their interdependence and interconnectedness using a GJR-GARCH-MIDAS model. The results highlight that an individual country’s stock market volatility is significantly influenced not only by its own market sentiment (proxied by the consumer confidence index) but also by the overall market sentiments of other countries across the world. The results also highlight significant country-by-country heterogeneity in the time lags of the global spillover effects, which indicates substantial heterogeneity in the behavioral dynamics of individual countries.

Keywords: market sentiment; stock market volatility; spillover effect; multi-country GJR-GARCH-MIDAS approach; behavioral dynamics (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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