RISK AND CONTAGION ON FINANCIAL MARKETS AFTER THE 2007 SUB-PRIME MORTGAGE CRISIS

摘要

The sub-prime mortgage crisis of 2007 that affected the US economy is considered the most severe financial catastrophe that affected the United States since the Great Depression. The main purpose of this study is to examine whether any contagion effect occurred across international financial markets after the sub-prime financial crisis. We investigate the co-movements in the US market index and sixteen European indices for the period between April 2007 and February 2012 using daily observations of prices and returns. We calculate the unconditional correlation coefficients for a stable period and a turmoil period and observe significant increases in their values, which indicate that contagion has occurred in the sub-prime financial crisis from the US market to almost all European markets under scrutiny - except for Greece.