 Sentiment: The bridge between financial markets and macroeconomyZhenxi Chen, Donald Lien and Yaheng Lin Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 1177-1190 Abstract: This paper develops a parsimonious model by incorporating a boundedly rational agent-based model from the finance literature into the macroeconomic framework. An empirical investigation using US data shows that firm investment depends on sentiment and interest rate, while sentiment and short-term interest rate are influenced by the stock market. The stock market is subject to the influences of firm performance as well as the sentiment. It is found that sentiment serves as a bridge connecting the macroeconomy and the stock market. On the one hand, the macroeconomy influences the stock market through sentiment as sentiment affects the derived fundamental value of the stock market. On the other hand, the stock market has an indirect influence on the macroeconomy in terms of investment and capital stock through its impact on sentiment and interest rate. Keywords: Sentiment; Stock market; Real effect (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:188:y:2021:i:c:p:1177-1190 DOI: 10.1016/j.jebo.2021.06.025 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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