The Role of Consumer Sentiment in the Stock Market: A Multivariate Dynamic Mixture Model With Threshold Effects

Zacharias Psaradakis, Francisco Rapetti, Martin Sola and Patricio Yunis

Oxford Bulletin of Economics and Statistics, 2025, vol. 87, issue 6, 1146-1157

Abstract: We consider the relationship between stock prices, volatility and consumer sentiment. The analysis is based on a new multivariate model defined as a time‐varying mixture of dynamic models in which contemporaneous relationships among variables are allowed and the mixing weights have a threshold‐type structure. We discuss issues related to the stability of the model and the estimation of its parameters. Our empirical results show that consumer sentiment significantly affects the S&P 500 price–dividend ratio and market volatility in at least one of the model's two regimes, which are associated with endogenously determined low and high consumer sentiment.

Date: 2025
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https://doi.org/10.1111/obes.12682

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Working Paper: The Role of Consumer Sentiment in the Stock Market: A Multivariate Dynamic Mixture Model with Threshold Effects (2024)
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