Systematic Contagion Effects of the Global Finance Crisis: Evidence from the World’s Largest Advanced and Emerging Equity Markets

Abstract

This paper examines the systematic contagion effects of the global financial crisis of 2007–2009 on the world’s largest advanced and emerging equity markets, using the conditional factor model of Dungey and Renault (2018) and and the adjusted correlation coefficient approach of Forbes and Rigobon (2002). Our findings indicate that when applying the Forbes and Rigobon approach, no evidence of contagion is found, while using the conditional factor model, we observe significant evidence of contagion in the aggregate equity markets of both advanced and emerging markets. Furthermore, the results from the conditional factor model suggest that the structural relationship across the financial sectors of advanced and emerging markets was significantly disrupted during the crisis period.