Research On Investor Sentiment Contagion Between China And The U.S Based On Financial Crisis

At the beginning of the 21 st century,the crisis in the financial market has frequently broken out.From the US subprime mortgage crisis to the European debt crisis,every crisis has intensified and spread rapidly from the outbreak to other major countries in the world.The channels of transmission of the financial crisis have always been of concern to scholars.Previous studies have mainly focused on channels such as trade channels and financial market channels,which have been generally recognized by traditional ways.They have neglected the purely contagious channels of the financial crisis,which is,based on the research of behavioral finance on investor psychology and behavior.The irrational sentimental reactions and investment behaviors made by the national investors to market changes have deepened the financial markets vision.Therefore,it is necessary for us to study the contagion of investor sentiment between macro-level countries.This article focuses on the infectivity of investor sentiments between China and the United States in the context of the financial crisis.This article draws on the BW method proposed by Baker and Wurgler(2006),which is to construct a comprehensive index of investor sentiment between China and the United States by using principal component analysis to reduce dimensions and the cumulative variance interpretation rate is greater than 85%.Firstly,the Granger causality test verifies that during the financial crisis,U.S.investor sentiment has a one-way transmission of Chinese investor sentiment,and establishing the ARMA-KDE model to obtain the edge distribution,which reflects the degree of correlation between financial markets.The Copula function measures the correlation between the emotional indicators of the two countries.The static coefficient of Copula indicates that the correlation coefficient between the two is relatively large.Therefore,the possibility of China's investor sentiment reacts to the abnormal behavior of the U.S.investor's investment psychology or behavior is high,which approves the investor sentiment indicators between China and the United States are contagious.Through time-varying Copula,we can see that during the 2008 financial crisis,the correlation coefficient between the two has increased significantly.Therefore,during the subprime crisis,the investor sentiment of the two countries peaked.By comparing the time-varying correlation coefficient between the financial crisis period and the non-crisis period,it is further confirmed that the investor sentiment during the financial crisis was highly contagious and that there was a certain degree of lag in the infection.Finally,we established an impulse response by establishing a VAR model of the sentiment indicators of the two countries during the yfinancial crisis.U.S.investor sentiment has a positive impulse response to Chinese investor sentiment during the first two lags,peaking in the second period,and later due to the financial crisis,negative news continues to occur,leading to the accumulation of irrational investor behavior,so the impact continues to decline at a slower pace.