Are crises sentimental?

Tao Chen*, Erin P K So, Isabel K.M. Yan

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    1 Citation (Scopus)


    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.

    Original languageEnglish
    Pages (from-to)962-985
    Number of pages24
    JournalInternational Journal of Finance and Economics
    Issue number1
    Early online date28 Jul 2020
    Publication statusPublished - Jan 2021

    Scopus Subject Areas

    • Accounting
    • Finance
    • Economics and Econometrics

    User-Defined Keywords

    • crisis prediction
    • financial crises
    • market sentiment


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