An Empirical Research On The Contagion Effect Of American Financial Crisis In Eastern Asia

With the development of globalization and liberalization in the financial and economical system, a financial crisis may strike more broadly, not just in the single country where the crisis broke out. By analyzing the financial crisis occurring in the past twenty years, such as, European currency crisis, Mexican debt crisis, Eastern Asian Crisis and American financial crisis, it is easy to find that all of them share a common feature, that is, contagion.Since American financial crisis resulting from mortgage loan broke out in2007, turmoil caused by crisis spread to world at a staggering speed and led to the fluctuation of the financial markets. In other words, the crisis has exerted negative effects on the global economy extensively. As we all know, Eastern Asia has a close relationship with America both in international trade and finance, as a result, it is of great importance to test the existence of contagion effect in the crisis and bring forwards relevant suggestions accordingly.Combined with previous studies, this article is aimed to explore whether there was a contagion effect in financial crisis by analyzing the relationship between American stock market and Eastern Asian stock market. Firstly, according to domestic and foreign literature, the concepts of financial crisis and contagion are clearly defined, and the theoretical and empirical studies are overally summarized. Secondly, after sample selection and data process, the empirical study is conducted on Granger causality test and impulse response test in VAR, and the conclusion is reached. Thirdly, based on the results of the empirical study, this article puts forward some policy suggestions concerning how to avoid crisis contagion, in order to enhance the stability of financial system. The empirical research revealed that the stock markets of Mainland China, Japan, Taiwan and Korea showed the character of contagion and the contagion effect in Mainland stock market was the weakest among them. On the contrary, Hongkong stock market did not show contagion.