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Contagion in International Stock Markets After the Subprime Mortgage Crisis

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  • Wei-Shun Kao
  • Tzu-Chuan Kao
  • Chang-Cheng Changchien
  • Li-Hsun Wang
  • Kuei-Tzu Yeh

Abstract

The study focuses on utilizing a modified heteroskedasticity biased test for contagion based on cross-market correlation coefficients proposed by Forbes and Rigobon (2002) to find the evidence of contagion on 31 stock markets during the 2007 U.S. subprime mortgage turmoil. In contrast to the empirical results of Forbes and Rigobon (2002), which indicated that there was no contagion only interdependence during the 1997 Asian crisis, the 1994 Mexican peso devaluation, and the 1987 U.S. market crash, the empirical results demonstrate that the contagion occurred on emerging and East Asian stock markets during the 2007 U.S. subprime mortgage crisis. With extensions in the duration of the crisis, the contagion disappeared rapidly, and only the contagion occurred on the Brazilian stock market that lasted for six months.

Suggested Citation

  • Wei-Shun Kao & Tzu-Chuan Kao & Chang-Cheng Changchien & Li-Hsun Wang & Kuei-Tzu Yeh, 2018. "Contagion in International Stock Markets After the Subprime Mortgage Crisis," Chinese Economy, Taylor & Francis Journals, vol. 51(2), pages 130-153, March.
    • Handle: RePEc:mes:chinec:v:51:y:2018:i:2:p:130-153
    DOI: 10.1080/10971475.2018.1447822
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    Citations

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    Cited by:

    1. Muhammad Zeeshan Younas, 2020. "How Did Risk Management Methods Change After The 2007 Sub-Prime Mortgage Crisis In The United Kingdom?," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 9(1), pages 22-31, March.
    2. Jorge Omar Razo-De-Anda & Luis Lorenzo Romero-Castro & Francisco Venegas-Martínez, 2023. "Contagion Patterns Classification in Stock Indices: A Functional Clustering Analysis Using Decision Trees," Mathematics, MDPI, vol. 11(13), pages 1-27, July.
    3. Moinak Maiti & Darko Vukovic & Yaroslav Vyklyuk & Zoran Grubisic, 2022. "BRICS Capital Markets Co-Movement Analysis and Forecasting," Risks, MDPI, vol. 10(5), pages 1-13, April.
    4. Meng, Xiangcai & Huang, Chia-Hsing, 2019. "The time-frequency co-movement of Asian effective exchange rates: A wavelet approach with daily data," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 131-148.

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