Empirical analysis for contagion effect of financial crisis based on Granger Causality test

Since the Tequila crisis of 1994, the Asian flu of 1997, and the Russian virus of 1998, economists have been busy producing research on the subject of contagion. Yet, despite the fast growth of contagion theory, few studies have examined empirically contagion. This paper takes the Asian financial crisis as an example to show that Granger Causality test is a powerful tool for studying the contagion effect of financial crisis. It can be concluded whether contagion effect does exist by analyzing the Granger Causality change of the volatility of financial markets prior to and during crisis periods. The results show the evidence of cross-border contagion in Asian financial crisis.