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Contagion effects of the subprime crisis in the European NYSE Euronext markets

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  • Paulo Horta
  • Carlos Mendes
  • Isabel Vieira

Abstract

This paper presents three tests of contagion of the US subprime crisis to the European markets of the NYSE-Euronext group. Copula models are used to analyse dependence structures between the US's and the other markets in the sample, in the pre-crisis and in the subprime crisis periods. The first test assesses the existence of contagion on the relevant markets' indices, the second checks the homogeneity of contagion intensities, and the third compares contagion in financial and in industrial sectors' indices. Results suggest that contagion exists, and is equally felt, in most markets and that investors anticipated a spreading of the financial crisis to the real economy, long before such dissemination was observable.
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Suggested Citation

  • Paulo Horta & Carlos Mendes & Isabel Vieira, 2010. "Contagion effects of the subprime crisis in the European NYSE Euronext markets," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 9(2), pages 115-140, August.
    • Handle: RePEc:spr:portec:v:9:y:2010:i:2:p:115-140
    DOI: 10.1007/s10258-010-0056-6
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    More about this item

    Keywords

    Financial contagion; Subprime crisis; Stock markets; Copula theory; F30; G14; G15;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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