Googling investor's sentiment, financial stress and dynamics of European market indexes: a Markov chain analysis

Fayrouz Souissi, Yousra Trichilli and Mouna Boujelbène-Abbes

International Journal of Bonds and Derivatives, 2020, vol. 4, issue 2, 152-178

Abstract: This study investigates the relationship between financial stress, googling investor's sentiment and indexes returns dynamics in five European markets. By using a Markov model, we find that the effect of the googling investor's sentiment on the stock market return highlights the persistence of the three regimes: bullish state for Germany and Spain; bearish state for Italy and the UK and stable state for France. For the effect of the stress index on the return, we note that France and Italy are in the bullish regime, the UK is in stable state and the persistence of the bearish regime for Germany and Spain. The smoothed and filtered probabilities suggest that the effect of googling investor's sentiment on market index return is subject to switching regime for all countries. For the stress index, results reveal the limited predictive power of financial stress on the change of regime of the financial markets.

Keywords: investor sentiment; financial stress index; Markov switching; BEKK-GARCH; financial market dynamics. (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijbder:v:4:y:2020:i:2:p:152-178

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