Contagion in International Stock Markets After the Subprime Mortgage Crisis

The study focuses on utilizing a modified heteroskedasticity biased test for contagion based on cross-market correlation coefficients proposed by Forbes and Rigobon (2002 Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: Measuring stock market co-movements. Journal of Finance, 57(5), 2223–2261. doi:10.1111/0022-1082.00494[Crossref], [Web of Science ®] , [Google Scholar]) 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 Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: Measuring stock market co-movements. Journal of Finance, 57(5), 2223–2261. doi:10.1111/0022-1082.00494[Crossref], [Web of Science ®] , [Google Scholar]), 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.