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Contagion effects of the US Subprime Crisis on Developed Countries

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Author Info

  • Paulo Horta

    () (CMVM)

  • Carlos Mendes

    () (UNINOVA and DEE, Faculdade de Ciencias e Tecnologia, Universidade Nova de Lisboa)

  • Isabel Vieira

    () (Universidade de Evora)

Abstract

This study assesses whether capital markets of developed countries reflect the effects of financial contagion from the US subprime crisis and, in such case, if the intensity of contagion differs across countries. Adopting a definition of contagion that relates the phenomenon to an increase of cross-market linkages following a shock, copula models are used to analyse how the connections between the US and each market in the sample, evolved from the pre-crisis to the crisis period. The results suggest that markets in Canada, Japan, Italy, France and the United Kingdom display significant levels of contagion, which are less relevant in Germany. Canada appears to be the country where the highest intensity of contagion is observed.

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Bibliographic Info

Paper provided by University of Evora, CEFAGE-UE (Portugal) in its series CEFAGE-UE Working Papers with number 2008_08.

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Length: 30 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:cfe:wpcefa:2008_08

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Related research

Keywords: G7; subprime crisis; contagion; copula; event study.;

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References

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  1. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
  2. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
  3. François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
  4. Gonzalo, Jesús & Olmo, José, . "Contagion versus flight to quality in financial markets," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/339, Universidad Carlos III de Madrid.
  5. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
  6. Lorenzo Cappiello & Bruno Gérard & Simone Manganelli, 2005. "Measuring comovements by regression quantiles," Working Paper Series 501, European Central Bank.
  7. Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2001. "A new approach to measuring financial contagion," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 489-529.
  8. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  9. Bertero, Elisabetta & Mayer, Colin, 1990. "Structure and performance: Global interdependence of stock markets around the crash of October 1987," European Economic Review, Elsevier, vol. 34(6), pages 1155-1180, September.
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Citations

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Cited by:
  1. Abdullah Yalama, 2012. "International Financial Contagion: The Role of the UK," Bogazici Journal of Economics and Administrative Sciences, Bogazici University, Department of Economics, vol. 26(2), pages 115-129.
  2. Bong-Han Kim & Hyeongwoo Kim & Bong-Soo Lee, 2012. "Spillover Effects of the U.S. Financial Crisis on Financial Markets in Emerging Asian Countries," Auburn Economics Working Paper Series auwp2012-06, Department of Economics, Auburn University.
  3. Støve, Bård & Tjøstheim, Dag & Hufthammer, Karl Ove, 2010. "Measuring Financial Contagion by Local Gaussian Correlation," Discussion Papers 2010/12, Department of Finance and Management Science, Norwegian School of Economics.

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