Social Interaction, Investor Sentiment And Financial Contagion

This paper discusses the ?pure contagion‘ channel of financial crisis, which needs a more profound understanding of the individual’s irrational psychology and behavior, and we start our research from the social interaction and investor sentiment perspective. This article embarks from the social interactions between individuals, and studies the effects of social interaction on stock market participation. On this basis, we adopt the method of mathematical analysis and simulation modeling to study the micro sentiment transmission mechanism. From the macro level, we also study the investor sentiment contagion in the subprime mortgage crisis and the effects of global investor sentiment on the financial crisis spread. This paper tries to build a bridge between the micro individual interaction and the macro market interaction.This paper can be divided into two main parts. At the micro level, this study mainly includes the effects of individual interaction on the behavior of stock market participation, the simulation for individual investor sentiment spread and the investor sentiment characteristics in network interactions. At the macro level, our research mainly includes the investor sentiment contagion across the market, as well as the emotional impact on the financial crisis spread around the world. In this paper, the main conclusions and innovations can be summarized as the following four aspects:1. This paper studies how social interactions affect the behavior of stock market participation in modern society, especially the activity of stock market participation. In particular, this article first embarks from the investors‘ bounded rationality and ambiguity aversion, and then the nonlinear relationship between social interaction and stock market participation is deduced.2. In this paper, based on the classical SISa mode, we have established a new sentiment contagion model. This model takes the automatically generating process and the different states of sentiment into account. We use the text data from the network to study the correlation between social interaction and investor sentiment, and we have discovered that the investor sentiment spread process is asymmetric.3. This paper studies the investor sentiment contagion at the market level and its identification and inspection. By using correlation analysis method, the empirical results show that during the US subprime crisis, the investor sentiment at the most of the countries has been influenced by US sentiment.4. This paper studies the relationship between global sentiment and financial contagion, which enriches the cognition to the financial contagion channels. In this paper, the empirical results show that, in general, the global sentiment accelerates the spread of financial crisis in developed countries, while in developing markets, this impact is not significant. We explain the results from the angle of capital flow.