How Does Happiness Affect Stock Market Returns?: An Examination of G5 Countries : How Does Happiness Affect Stock Market Returns?: An Examination of G5 Countries

Kübra SAKA ILGIN

doi:10.62844/jerf.33

Authors

Kübra SAKA ILGIN Erzincan Binali Yıldırım Üniversitesi https://orcid.org/0000-0001-5797-9617

DOI:

https://doi.org/10.62844/jerf.33

Keywords:

Happiness index, Stock market returns, G5 countries, Panel data analysis, Dynamic common correlated effects

Abstract

This paper aims to analyze the impact of the happiness index on stock market returns in G5 countries during the 2008-2024 period. Inflation rates of the countries were included as a control variable in the model. Panel data analysis utilized the Westerlund Panel Cointegration test and the DCCE (Dynamic Common Correlated Effects) estimator. Cointegration test findings showed that the happiness index and stock market returns acted together in the long term in the G5 (Group of Five) countries during the relevant period. According to the DCCE estimation results, which calculated short- and long-term coefficients, it was determined that in the short term, the happiness index dominated the markets through investor sentiment, resulting in positive returns in the stock markets. In the long term, the negative relationship identified between the happiness index and stock market returns was interpreted as structural constraints brought about by increased welfare and increased corporate costs negatively impacting stock market returns. This indicates a long-term trade-off mechanism between social welfare and financial expansion in G5 countries. It can be expressed that the findings of the paper have contributed to the development of several recommendations for policymakers, investors, and academics.

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How Does Happiness Affect Stock Market Returns?: An Examination of G5 Countries