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Are crises sentimental?
Author(s) -
Chen Tao,
So Erin P. K.,
Yan Isabel K. M.
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1830
Subject(s) - equity (law) , economics , predictive power , monetary economics , vulnerability (computing) , financial economics , political science , philosophy , computer security , epistemology , computer science , law
This paper examines the role of investor sentiment in signalling the onset of equity crises in a panel of over 50 countries. We find that although poor economic fundamentals are significant determinants of the vulnerability of countries, a shift from bullish to bearish investor sentiment acts as the final trigger. Bearish investor sentiment in regional and local markets exhibits significant predictive power for the outbreak of equity crises in the subsequent one to eight quarters, beyond that forecasted by pure economic fundamentals. The results remain broadly unchanged even after we orthogonalize the sentiment indices to information about economic fundamentals.