Collective intelligence in financial markets : does consumer sentiment influence valuation of financial products?

This paper examines the relationship between the public mood associated with the economies of Italy, Spain and Greece, and prices of Credit Default Swaps on sovereign bonds of aforementioned countries. The effect of the changes in the public mood was measured by Granger causality tests and linear regression models. A price change prediction model was built based on the CART technique. Results of the Granger tests suggest that constructed mood indices convey new and meaningful information about changes in CDS prices. Moreover, the extent to which this is true varies between countries. In the analyzed timeframe, public mood is a much better predictor for Spain than for Italy. Investigation of this difference revealed that there is a strong relationship between the mood associated with Spanish CDS and changes in the Italian CDS prices. This empirical evidence illustrates the spillover effect that troubles in one economy might have on another economy.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2012

Author dc:creator

• Chekanskiy, Sergey (Sergey Alexandrovich)

Advisor dc:contributor.advisor

• Peter Gloor.

• Sloan School of Management.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/72872

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/72872