How does the asymmetric spillover of investor sentiment respond to economic policy uncertainty in G7 and BRICS countries?

Anh Tram Luong

Review of Behavioral Finance, 2025, vol. 17, issue 2, 317-341

Abstract: Purpose - In recent years, both G7 and BRICS countries have witnessed a noticeable increase in economic policy uncertainty, prompting concerns about its ramifications on global financial markets. This study aims to investigate how economic policy uncertainty influences the transmission of investor sentiment within the G7 and BRICS groups. Design/methodology/approach - Employing the asymmetric time-varying parameter-vector autoregression model and the quantile regression techniques, this research analyzes the interconnectedness of investor sentiment within the G7 and BRICS groups and the impact of geopolitical risks on these spillovers. Findings - Investor sentiment within the G7 group exhibits higher interconnectedness levels than the BRICS group. However, in both groups, “negative biases” exist in sentiment transmission, as indicated by elevated total connectedness indices during pessimistic periods. Furthermore, larger markets, such as the UK, the United States and Russia, tend to act as net transmitters within these networks. The magnitude of sentiment spillover among investors intensifies during periods of heightened economic policy uncertainty, particularly during downturns in sentiment and at higher quantiles of investor sentiment interconnectedness. Originality/value - These findings offer several implications for economic policymakers amidst the globalization of financial markets. This research provides novel insights into the asymmetric transmission of investor sentiment under economic policy uncertainty, highlighting the differing roles of larger markets and the varying degrees of sentiment interconnectedness between the G7 and BRICS groups.

Keywords: Investor sentiment; Asymmetric spillover; Economic policy uncertainty; G7 countries; BRICS countries; E60; G15; G40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rbfpps:rbf-08-2024-0221

DOI: 10.1108/RBF-08-2024-0221

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