CONTAGION EFFECTS OF THE SUBPRIME CRISIS IN THE EUROPEAN NYSE-EURONEXT MARKETS

This paper presents three tests of contagion of the US subprime crisis to the European markets of the NYSE-Euronext group. Copula models are used to analyse dependence structures between the US’s and the other markets in the sample, in the pre-crisis and in the subprime crisis periods. The first test assesses the existence of contagion on the relevant markets ’ indices, the second checks the homogeneity of contagion intensities, and the third compares contagion in financial and in industrial sectors ’ indices. Results suggest that contagion exists, and is equally felt, in most markets and that investors anticipated a spreading of the financial crisis to the real economy, long before such dissemination was observable. Key-words: financial contagion; subprime crisis; stock markets; copula theory