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Contagion effects of the US Subprime Crisis on Developed Countries

Author

Listed:
  • 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.

Suggested Citation

  • Paulo Horta & Carlos Mendes & Isabel Vieira, 2008. "Contagion effects of the US Subprime Crisis on Developed Countries," CEFAGE-UE Working Papers 2008_08, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2008_08
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    Cited by:

    1. Khallouli, Wajih & Sandretto, René, 2012. "Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 134-166.
    2. Wajih Khallouli & Rene Sandretto, 2011. "Testing for “Contagion” of the Subprime Crisis on the Middle East And North African Stock Markets: A Markov Switching EGARCH Approach," Working Papers 609, Economic Research Forum, revised 08 Jan 2011.
    3. Jayech, Selma, 2016. "The contagion channels of July–August-2011 stock market crash: A DAG-copula based approach," European Journal of Operational Research, Elsevier, vol. 249(2), pages 631-646.
    4. Ahmed El Ghini & Youssef Saidi, 2015. "Financial market contagion during the global financial crisis: evidence from the Moroccan stock market," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 4(1), pages 78-95.
    5. Oloko, Tirimisiyu F., 2018. "Portfolio diversification between developed and developing stock markets: The case of US and UK investors in Nigeria," Research in International Business and Finance, Elsevier, vol. 45(C), pages 219-232.
    6. Maximilian-Benedikt Herwarth Kohn & Pedro L. Valls Pereira, 2017. "Speculative bubbles and contagion: Analysis of volatility’s clusters during the DotCom bubble based on the dynamic conditional correlation model," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1411453-141, January.
    7. Oussama Tilfani & Paulo Ferreira & My Youssef El Boukfaoui, 2021. "Dynamic cross-correlation and dynamic contagion of stock markets: a sliding windows approach with the DCCA correlation coefficient," Empirical Economics, Springer, vol. 60(3), pages 1127-1156, March.
    8. Ahmed El Ghini & Youssef Saidi, 2017. "Return and volatility spillovers in the Moroccan stock market during the financial crisis," Empirical Economics, Springer, vol. 52(4), pages 1481-1504, June.
    9. Abdullah Yalama, 2012. "International Financial Contagion: The Role of the UK," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 26(2), pages 115-129.
    10. Diego Ferreira & Andreza A. Palma, 2022. "On the subprime crisis and the Latin American financial markets: A regime switching skew‐normal approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3300-3314, July.
    11. Kim, Bong-Han & Kim, Hyeongwoo & Lee, Bong-Soo, 2015. "Spillover effects of the U.S. financial crisis on financial markets in emerging Asian countries," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 192-210.
    12. Mohti, Wahbeeah & Dionísio, Andreia & Vieira, Isabel & Ferreira, Paulo, 2019. "Financial contagion analysis in frontier markets: Evidence from the US subprime and the Eurozone debt crises," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 1388-1398.
    13. Domingo Rodríguez Benavides & Ignacio Perrotini Hernández, 2019. "Las correlaciones dinámicas de contagio financiero:Estados Unidos y América Latina," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(2), pages 151-168, Abril-Jun.
    14. Emine Ebru AKSOY & Erginbay UÐURLU, 2015. "How did the 2007-2008 Financial Crisis Influence Turkish Firms," Journal of Economics and Political Economy, KSP Journals, vol. 2(4), pages 494-506, December.
    15. GABRIEL, Victor Manuel de Sousa & MANSO, José Ramos Pires, 2014. "Financial Crisis And Stock Market Linkages," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 23(4), pages 133-148.
    16. Christian Bauer & Bernhard Herz & Alexandra Hild, 2011. "Structured Eurobonds," Research Papers in Economics 2011-09, University of Trier, Department of Economics.
    17. Gabriel, Vítor, 2015. "Sensitivity, Persistence and Asymmetric Effects in International Stock Market Volatility during the Global Financial Crisis || Efectos de sensibilidad, persistencia y asimetría en la volatilidad de lo," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 19(1), pages 42-65, June.
    18. Hemche, Omar & Jawadi, Fredj & Maliki, Samir B. & Cheffou, Abdoulkarim Idi, 2016. "On the study of contagion in the context of the subprime crisis: A dynamic conditional correlation–multivariate GARCH approach," Economic Modelling, Elsevier, vol. 52(PA), pages 292-299.
    19. Støve, Bård & Tjøstheim, Dag & Hufthammer, Karl Ove, 2010. "Measuring Financial Contagion by Local Gaussian Correlation," Discussion Papers 2010/12, Norwegian School of Economics, Department of Business and Management Science.
    20. Celık, Sibel, 2012. "The more contagion effect on emerging markets: The evidence of DCC-GARCH model," Economic Modelling, Elsevier, vol. 29(5), pages 1946-1959.
    21. Zorgati, Imen & Lakhal, Faten & Zaabi, Elmoez, 2019. "Financial contagion in the subprime crisis context: A copula approach," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 269-282.
    22. Thi Bich Ngoc TRAN, 2018. "Contagion Risks in Emerging Stock Markets: New Evidence from Asia and Latin America," JRFM, MDPI, vol. 11(4), pages 1-20, December.
    23. Claudeci Da Silva & Hugo Agudelo Murillo & Joaquim Miguel Couto, 2014. "Early Warning Systems: Análise De Ummodelo Probit De Contágio De Crise Dos Estados Unidos Para O Brasil(2000-2010)," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 110, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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    More about this item

    Keywords

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