Contagion effects of the subprime crisis in the European NYSE Euronext markets

Horta, Paulo; Mendes, Carlos; Vieira, Isabel

doi:10.1007/s10258-010-0056-6

Cited by 64 publications

(64 citation statements)

References 31 publications

(25 reference statements)

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“…Moreover, it allows returns to have asymmetric and heavy tail distributions, which some empirical evidence has shown to be adequate in describing financial returns. Horta et al (2010) concluded for a smaller data-set that there was contagion of the US subprime crisis in the European stock markets belonging to the NYSE Euronext group. We have now confirmed that result and have added that the portfolio-rebalancing channel is a vital crisis transmission mechanism and that the flight-to-quality phenomenon is present in all analyzed stock markets.…”

Section: Introductionmentioning

confidence: 98%

Unveiling investor-induced channels of financial contagion in the 2008 financial crisis using copulas

Horta

Lagoa

Martins

2015

Quantitative Finance

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Understanding how financial crises spread is important for policy-makers and regulators in order to take adequate measures to prevent or contain the spread of these crises. This paper will test whether there was contagion of the subprime financial crisis to the European stock markets of the NYSE Euronext group (Belgium, France, the Netherlands and Portugal) and, if evidence of contagion is found, it will determine the investor-induced channels through which the crisis propagated. We will use copula models for this purpose. After assessing whether there is evidence of financial contagion in the stock markets, we will examine whether the 'wealth constraints' transmission mechanism prevails over the 'portfolio rebalancing' channel. An additional test looks at the interaction between stock and bond markets during the crisis and allows us to determine if the transmission occurred due to the 'cross market rebalancing' channel or the 'flying to quality' phenomenon. The tests suggest that (i) financial contagion is present in all analyzed stock markets, (ii) a 'portfolio rebalancing' channel is the most important crisis transmission mechanism, (iii) and the 'flight-to-quality' phenomenon is also present in all analyzed stock markets.

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Section: Introductionmentioning

confidence: 98%

Unveiling investor-induced channels of financial contagion in the 2008 financial crisis using copulas

Horta

Lagoa

Martins

2015

Quantitative Finance

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“…The subprime crisis, for example, was not actually confined to the US mortgage markets. As a result of securitization, the crisis spread to the entire financial market, not only in the US, but also to all developed countries (Horta et al, 2008). Within a couple of months, the Dow Jones index plummeted from 14,093 (September 28, 2007) to 12,980 (November 23, 2007) and then to 6,626 (March 6, 2009).…”

Section: Introductionmentioning

confidence: 99%

Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach

Khallouli

Sandretto²

2012

JEI

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In this paper, we investigate whether the recent financial turmoil which arose in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson, 1999) rather than shift-contagion (Rigobon, 2003). Then, we explicitly define financial "contagion" in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistence of recession characterised by low mean/high variance regimes which coincides with the third phase of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market.• JEL Classification: C32, F31, G01, G15

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“…One alternative method resides in using parametric marginal distribution functions instead. Two alternative parametric functions commonly used to fit the returns of financial assets are the Gaussian and Student's t marginal distributions (Horta et al, 2010). We estimate the copula functions using these parametric marginal distributions.…”

Section: Methodology and Empirical Resultsmentioning

confidence: 99%

Tail Dependence of Financial Stocks and CDS Markets – Evidence Using Copula Methods and Simulation-Based Inference

Silva¹,

Rebelo

Afonso

2014

Economics

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Using copula methods and simulation-based inference, the authors investigate the association between the performance of a stock index formed by European financial institutions and a basket of CDS contracts of the same sector. Their analysis focuses on (i) assessing the dependence structure of the markets when extreme events occur, and (ii) checking the validity of the conclusion by Merton (On the Pricing of Corporate Debt: The Risk Structure of Interest Rates, 1974) and other similar structural models that there is an intensification of the relationship between stock prices and credit spreads after large negative shocks in the value of firms' assets. The authors show that there is a large tail dependence between the two portfolios. However, the dependence structure seems to be similar with respect to positive and negative innovations in the indexes. Their findings suggest that credit models' implications do not apply to financial firms, likely because the implicit subsidies from governments to financial institutions are distorting the dependency structure. JEL G13 G14 G15

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Contagion effects of the subprime crisis in the European NYSE Euronext markets

Cited by 64 publications

References 31 publications

Unveiling investor-induced channels of financial contagion in the 2008 financial crisis using copulas

Unveiling investor-induced channels of financial contagion in the 2008 financial crisis using copulas

Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach

Tail Dependence of Financial Stocks and CDS Markets – Evidence Using Copula Methods and Simulation-Based Inference

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