Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174870
Authors: 
Luu, Duc Thi
Yanovski, Boyan
Lux, Thomas
Year of Publication: 
2018
Series/Report no.: 
Economics Working Paper 2018-03
Abstract: 
In this paper, we investigate the temporal dynamics of correlations between sentiment indices worldwide. Employing the tools of Random Matrix Theory (RMT) and Principal Component Analysis (PCA), our paper aims to extract latent information embedded in the interactions between economic and business sentiment indices around the world. We find that: (i) The dynamics of the sentiment indices across countries can be well explained by the evolution of a single factor (the "market mode"), (ii) during most periods, some groups of countries exhibit sentiment dynamics less associated with (or divergent from) the market mode, while (iii) during the financial crisis, no country or group of countries has been able to escape the market mode, which accounts for almost all movements in the indices. We argue that strong "global" information signals, like the collapse of the US housing market in 2007, can lead to a homogenization of the expectation structure around the world, as such information can provide a coordination signal for a global phase of low confidence.
Subjects: 
Sentiment Index
Correlations
Financial Crisis
Random Matrix Theory
Principal Component Analysis
JEL: 
C19
E30
E71
G01
Document Type: 
Working Paper

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