EconPapers    
Economics at your fingertips  
 

An analysis of systematic risk in worldwide econonomic sentiment indices

Duc Thi Luu, Boyan Yanovski and Thomas Lux

No 2018-03, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: In this paper, we investigate the temporal dynamics of correlations between sentiment indices worldwide. Employing the tools of Random Matrix Theory (RMT) and Principal Component Analysis (PCA), our paper aims to extract latent information embedded in the interactions between economic and business sentiment indices around the world. We find that: (i) The dynamics of the sentiment indices across countries can be well explained by the evolution of a single factor (the "market mode"), (ii) during most periods, some groups of countries exhibit sentiment dynamics less associated with (or divergent from) the market mode, while (iii) during the financial crisis, no country or group of countries has been able to escape the market mode, which accounts for almost all movements in the indices. We argue that strong "global" information signals, like the collapse of the US housing market in 2007, can lead to a homogenization of the expectation structure around the world, as such information can provide a coordination signal for a global phase of low confidence.

Keywords: Sentiment Index; Correlations; Financial Crisis; Random Matrix Theory; Principal Component Analysis (search for similar items in EconPapers)
JEL-codes: C19 E30 E71 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/174870/1/1013889339.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201803

Access Statistics for this paper

More papers in Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2019-03-31
Handle: RePEc:zbw:cauewp:201803