Detecting financial markets contagion using copula functions

摘要

In this paper, we test the hypothesis of contagion in the subprime mortgage crisis by applying the theory of copulas to measure the contagion among a sample of eight emerging and eight developed markets. The empirical results show that this new approach proves more appropriate to describe the non-linear and complex dynamics of the financial market returns than traditional modeling which imply a normality hypothesis. In addition, this study confirms the contagious nature of the crisis between emerging and developed markets.