Impact of sentiment indicators on the capital market dynamics and default probability
Keywords:
capital markets, sentiment indicators, credit default swap, GARCH modelsAbstract
This paper examines the impact of sentiment indicators on the financial market dynamics and default probability. First, we use GARCH models and Granger Causality Test in order to test the relationship between sentiment indicators and capital market dynamics of eleven Southeastern European countries. Second, we employ GARCH models and Granger Causality Test to examine the influence of sentiment indicators on the sovereign credit risk in Bulgaria. The analyzed period is from January 2005 to November 2015. The results reveal that the consumer sentiment information and inflation expectations have influence on the financial market dynamics of SEE stock indices. Test results present that sentiment variables may explain CDS spread changes efficiently. We observe bilateral relations, which may be accepted as proves that turmoil periods may be led by panic and fear of investors without any enormous change in other factors.References
Aga, M. and B. Kocaman. (2011). Efficient Market Hypothesis and Emerging Capital Markets: Empirical Evidence from Istanbul Stock Exchange, Journal of Financial Markets Research, 44-57.
Armeanu, D. and S. Cioaca. (2014). Testing the Efficient Markets Hypothesis on the Romanian Capital Market, Proceedings of the 8th Management challenges for sustainable development international conference, November 6th-7th, 2014, Bucharest, Romania, 252-261.
Barber, B. M., and T. Odean. (2008). All that glitters: The efect of attention and news on the buying behavior of individual and institutional investors, Review of Financial Studies, 21(2), 785-818.
Baumohl, B. (2012). The secrets of economic indicators: hidden clues to future economic trends and investment opportunities, Upper Saddle River, New Jersey: FT Press.
Borges, M. R. (2010). Efficient market hypothesis in European stock market, The European Journal of Finance, 1607, 711-726.
Cohen, L., and A. Frazzini. (2008). Economic links and predictable returns, Journal of Finance, 63(4), 1977-2011.
Corredor, P., Ferrer, E and Santamaria, R. (2015). The Impact of Investor Sentiment on Stock Returns in Emerging Markets: The Case of Central European Markets, Eastern European Economics, 53, 328-355.
Coudert, V. and M. Gex. (2006). Can risk aversion indicators anticipate financal crises?, Banque de France, Financial Stability Review, 9.
Curtin, R. T. (2007). Consumer Sentiment Surveys: Worldwide Review and Assessment. JBCMA, 2007/1.
Della Vigna, S., and J. M. Pollet. (2009). Investor inattention and Friday earnings announcements, Journal of Finance, 64(2), 709-749.
Ding, Z., C.W.J. Granger and R.F. Engle, (1993). A Long Memory Property of Stock Market Returns and a New Model, Journal of Empirical Finance, 1, 83-106.
Dragota, V. and D. S. Oprea. (2014). Informational efficiency tests on the Romanian stock market: a review of the literature, The Review of Finance and Banking, 06 (1), 015-028.
Duffie, D., and D. Lando. (2001). Term Structure of Credit Spreads With Incomplete Accounting Information. Econometrica, 69, 633-664.
Easley, D., M. O'hara, and P. S. Srinivas. (1998). Option volume and stock prices: Evidence on where informed traders trade, Journal of Finance, 53(2), 431-465.
Fontana, A. and M. Scheicher. (2010). An Analysis of Euro Area Sovereign CDS and Their Relation with Government Bonds, European Central Bank Working Paper Series, No.12, 2010.
Fontana, A. and Scheicher, M., (2008). An analysis of euro area sovereign CDS and theirrelation with government bonds, Working Paper Series 1271, European CentralBank.
Georgantopoulos, A. G., D. F. Kenourgios and A. D. Tsamis, (2011). Calendar anomalies in emerging Balkan equity markets, International economics & finance journal, 6 (1), 67-82.
Gerunov, A., (2014). Linkages between Public Sentiments and Stock Market Dynamics in the Context of the Efficient Market Hypothesis, Economic and Social Alternatives, 3, 58-71. (in Bulgarian)
Glosten, L.R., R. Jagannathan and D. Runkle. (1993). On the Relation Between the Expected Value and the Volatility of the Nominal Excess Return on Stocks, Journal of Finance, 48, 1779-1801.
Görmüş, Ş. And S. Güneş. (2010). Consumer Confidence, Stock Prices and Exchange Rates: The Case of Turkey, Econometrics and International Development, 10, 113-124. ISSN: 1578-4487.
Greatrex, C. A. (2009). Credit Default Swap Market Determinants, The Journal of Fixed Income, 18 (3), 18-32; DOI: https://doi.org/10.3905/JFI.2009.18.3.018
Hilscher, J., Pollet, J. and M. Wilson. (2015). Are Credit Default Swaps a Sideshow? Evidence That Information Flows from Equity to CDS Markets. Journal of Financial and Quantitative Analysis, 50(3), 543-567. doi:10.1017/S0022109015000228
Ivanov, I., B. Lomev, and B. Bogdanova. (2012). ”Investigation of the market efficiency of emerging stock markets in the East-European region”, International Journal of Applied Operational Research, 2(2), pp. 13-24, doi:http://www.ijorlu.ir/browse.php?mag_id=5&slc_lang=en&sid=1.
Lamont, O. and A. Frazzini, (2007). The Earnings Announcement Premium and Trading Volume, NBER Working Papers 13090, National Bureau of Economic Research, Inc.
Miljković, V. and O. Radović. (2006). Stylized facts of asset returns: case of BELEX, Facta Universitatis, Series: Economics and Organization, 3 (2), 189–201.
Nelson, D. (1991). Conditional heteroskedasticity in asset returns: a new approach, Econometrics, 59, 349–370.
Norden, L., and M. Weber. (2004). The Comovement of Credit Default Swap, Bond and Stock Markets: An Empirircal Analysis, Center of Financial Studies, № 2004/20.
Oprea, D.Ş. and L. Brad. (2013). Investor sentiment and stock returns: Evidence from Romania, International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(2), 23-29.
Samitas, A., D. Kenourgios and N. Paltalidis. (2011). Equity market integration in Balkan emerging markets, Research in International Business and Finance, 25(3), 296–307.
Schwert, G.W. (1989). Why Does Stock Market Volatility Change Over Time?, Journal of Finance, 44, 1115-1153.
Spyrou, S. Galariotis, E.G., and Makrichoti, P. (2016). Sovereign CDS spread determinants and spill-over effects during financial crisis: A panel VAR approach, Journal of Financial Stability (26), 62-77.
Spyrou, S. (2013). Investor sentiment and yield spread determinants: evidence from European markets, Journal of Economic Studies, 40(6), 739 – 762.
Tang, D.Y., and Yan, H. (2010). Market conditions, default risk and credit spreads, Journal of Banking and Finance, 743- 753.
Taylor, S.J. (1986). Modeling Financial Time Series. Chichester, UK: John Wiley and Sons.
Zakoïan, J. M. (1994). Threshold Heteroskedastic Models”, Journal of Economic Dynamics and Control, 18, 931-955.
Downloads
Published
How to Cite
Issue
Section
License
The Author(s) must make formal transfer of copyright for each article prior to publication in the International Journal of Contemporary Economics and Administrative Sciences. Such transfer enables the Journal to defend itself against plagiarism and other forms of copyright infringement. Your cooperation is appreciated. You agree that copyright of your article to be published in the International Journal of Contemporary Economics and Administrative Sciences is hereby transferred, throughout the World and for the full term and all extensions and renewals thereof, to International Journal of Contemporary Economics and Administrative Sciences.
The Author(s) reserve(s): (a) the trademark rights and patent rights, if any, and (b) the right to use all or part of the information contained in this article in future, non-commercial works of the Author's own, or, if the article is a "work-for-hire" and made within the scope of the Author's employment, the employer may use all or part of the information contained in this article for intra-company use, provided the usual acknowledgements are given regarding copyright notice and reference to the original publication.
The Author(s) warrant(s) that the article is Author's original work, and has not been published before. If excerpts from copyrighted works are included, the Author will obtain written permission from the copyright owners and shall credit the sources in the article. The author also warrants that the article contains no libelous or unlawful statements, and does not infringe on the rights of others. If the article was prepared jointly with other Author(s), the Author agrees to inform the co-Author(s) of the terms of the copyright transfer and to sign on their behalf; or in the case of a "work-for-hire" the employer or an authorized representative of the employer.
The journal is registered with the ISSN : 1925-4423.
IJCEAS is licensed under a Creative Commons Attribution 4.0 International License.
This license lets others distribute, remix, tweak, and build upon your work, even commercially, as long as they credit you for the original creation. This is the most accommodating of licenses offered. Recommended for maximum dissemination and use of licensed materials.
