How Does Investor Sentiment Affect Stock Market Crises? Evidence from Panel Data


  • We are grateful to the editor and two anonymous reviewers for valuable comments that greatly improved the paper. We also thank Mathieu Gex, Sandra Kamasukiri, and Barbara Brough for their helpful comments and suggestions.

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We test the impact of investor sentiment on a panel of international stock markets. Specifically, we examine the influence of investor sentiment on the probability of stock market crises. We find that investor sentiment increases the probability of occurrence of stock market crises within a one-year horizon. The impact of investor sentiment on stock markets is more pronounced in countries that are culturally more prone to herd-like behavior, overreaction and low institutional involvement.