The Connectedness Knowledge from Investors’ Sentiments, Financial Crises, and Trade Policy: An Economic Perspective

Several economics theories emphasize the investors’ decision-making. Contemporary fields of economics have found some contradictory theories compared to opinions based on the neoclassical approach. Following these concepts, the significance of the decisions made during uncertainty caused by trade policy and environmental legislation makes the concept of absolute rationality doubtful. This study aims to determine the effect of the dynamic link among energy and environmental regulation (EER), business investment and sentiment (BIS), financial crises (FC), and trade policy (TP) using an advanced Morlet wavelet technique. Wavelet correlation: Continuous wavelet transform and partial and multiple wavelet coherence analyses are employed on the monthly data of the study variables acquired for the period 1985 to 2023. The analysis results discovered that the connectedness between the variables progresses over time and frequency. The wavelet analysis indicates that appropriate environmental energy regulations and trade policies help to prevent financial crises and enhance business investments. The results also indicate that energy regulations, trade policy, and financial crises affect business investment sentiments. Further, the results highlight the implications and strategies for policymakers to cope with environmental issues and investor sentiment questions.