Research on the effect of financial contagion in the subprime crisis

Aymen JEBRI, Faouzi JILANI, Naoufel LIOUANE

Abstract


In this paper, we are interested in the propagation of the mortgage crisis "   subprime   " throughout the stock markets of the five developed economies namely the United States, being the country of origin of the crisis, France, Great Britain, Germany and Japan during the period ranging from 03/01/2006 to 25/02/2009, i.e. 778 observations for each country on a daily frequency. To verify the existence of financial contagion, we used the techniques of simple and adjusted correlations and the study of causality and co-integration in order to clarify the relationship of temporal combination and dynamic analysis of residues in series with modeling multivariate GARCH. We have, thus, shown that the relationship that did not exist during the tranquil period, did play an important role during the crisis period, demonstrating a phenomenon of “ pure contagion” and not of " normal interdependencies ".

Keywords: Contagion, Subprime Crisis, transmission channels, DCC GARCH


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DOI: http://dx.doi.org/10.5296/ijafr.v3i2.4410

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