Title: International financial contagion of the US sub-prime crisis: evidence through the adjusted correlation test and non-linear Error Correction Models (ECM)

Authors: Anis Omri, Sonia Ghorbel-Zouari

Addresses: Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of Airport, km 4.5, LP 1088, Sfax 3018, Tunisia. ' Faculty of Economics and Management of Sfax, Laboratory URECA, University of Sfax, Street of Airport, km 4.5, LP 1088, Sfax 3018, Tunisia

Abstract: In this essay, we test the presence of the contagion phenomenon during the US sub-prime crisis. We adopt the test of adjusted correlation coefficients between markets and propose a new procedure which involves testing the non-linearity of the propagation mechanisms shocks, estimated with a model of long-term interdependence. We apply this methodology to the financial markets which measure the risk perception. Our results conclude ||some contagion, some interdependence|| between the financial markets of USA, France, Germany, Japan and UK during the current crisis.

Keywords: sub-prime mortgages; financial crises; international contagion; adjusted correlation tests; nonlinear error correction models; USA; United States; market coefficients; non-linearity; propagation mechanisms; propagation shocks; long-term interdependence; financial markets; risk perceptions; risk measurement; France; Germany; Japan; UK; United Kingdom; monetary economics; finance.

DOI: 10.1504/IJMEF.2011.039326

International Journal of Monetary Economics and Finance, 2011 Vol.4 No.2, pp.135 - 149

Published online: 31 Mar 2011 *

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