This thesis tests financial contagion from the US to ten African markets during the 2007-09 financial crisis. For comparative purposes, testing procedures are also extended to cover a number of developed-economy markets.There is considerable debate within the literature as to how to measure contagion. A central focus of my research is therefore to compare alternative econometric methodologies. VAR based constant-correlation based techniques are examined alongside dynamic conditional correlation (DCC) based techniques. I find that the DCC approach is superior in respect to my dataset.The 2007-09 crisis was unique from a contagion perspective in that its impact was truly global. This provided a unique opportunity to examine the subject across different continents and market types. African markets were found to have lower levels of integration (correlation) with the US than developed-economy markets and this resulted in considerable differences in the way that the contagion event spread across these two groups.As well as being truly global, the 2007-09 crisis was a contagion event that lasted more than a year. I use the volatility index (VIX) to identify both a long crisis period and a series of sub-events. The former ran from 15 September 2008 to 15 October 2009. The four sub-events were 15/09/2008-10/10/2008, 15/09/2008-17/10/2008, 15/09/2008-27/10/2008 and 15/09/2008-20/11/2008.Correlations (and contagion) changed significantly as sub-events unfolded. At the onset of the crisis, correlations with all African markets increased relatively quickly. I suggest that this can possibly be considered as being consistent with fast herdingivbehaviour. The impact on developed markets was very different in that contagion spread slowly. I suggest that this can possibly be considered as being consistent with slow herding.I argue that differences in contagion found between African and developed markets reflect differences in social network effects in investor communities. I apply behavioural finance theory to more fully explore this issue and identify the channels through which contagion events developed.
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