Test for Contagion with Applications to Equity Markets

We empirically examine the episode of extraordinary turbulence in global financial markets during the subprime mortgage crisis of 2007. The analysis focuses on equity markets captured by daily movements for ten countries based on changes in correlation and coskewness of contagion tests. The results show that significant contagion effects are widespread from the US to both Asian and European equity markets based on coskewness change tests during the subprime mortgage crisis. Based on change in correlation test, there is significant evidence of contagion only to Asian equity markets during the subprime mortgage crisis.