Empirical Analysis Of International Financial Contagion

Along with the financial liberalization reform and market globalization, inter-national financial crisis and international financial turmoil appear continuously. Under the trend of global economic and financial integration, the crisis of the source will be spread to other areas and even the world through various channels, makes it hard for any country to escape crisis. Frequent financial crisis contagions cause great harm to the real economy, and bring a variety of problems in econom-ic, political, and social areas, such as stock market turmoil, currency devaluation, collapse of financial institutions, a boom in unemployment, negative economic growth, even a country’s political instability, etc. Analysis of financial contagion becomes an interest of attention in international financial field.Not long ago, the world’s economy was caught in the American sub-prime mortgage crisis and European debt crisis, which slow down the pace of global economic development. Different countries have suffered varying degrees of crisis blow. Owe to China’s lower financial openness and strict control in capital ac-count,it affected less by the crisis relative to other countries.With the quickening pace of opening to the outside world, this isolation layer of protection will dis-appear. Under this background, we study the problem of international financial crisis contagion.We over-viewed related theories about financial crisis contagion, including the connotation of the financial crisis, definition of financial crisis contagion, it-s’essential characteristics and transmission channels. And we also summarized several main quantitative analysis methods for inspection of contagion. Above analyses help us to deeply understand the connotation and cause of the interna-tional financial crisis contagion, as well as make good preparation for the rest of this article. The paper adopts two methods to test and measure financial crisis contagion. We first analyze financial crisis contagion in terms of uniform symbol of yield by using scan statistics, which focus on the longest chain and clustering of events. Combining with several countries’stock markets, an empirical analysis of sub-prime crisis and European debt crisis is presented in our paper. Adopt-ing respectively all data and separate data, we can conclude whether financial contagion exists or not and how to measure the degree of contagion. The empir-ical results show that the method proposed in our paper is effective, and those countries are more or less affected by the financial crisis. Then we employ the nonlinear quantile regression model to examine crisis contagion. On the basis of the partial correlation coefficient, a new quantitative analysis method for finan-cial crisis contagion effects is presented from the perspective of financial market risk. We select several countries in the sub-prime crisis for empirical analysis, and the result show that these countries are suffered the shock of the crisis infection similarly. Due to our country’s closer linkage with the world, we provide several suggestions about how to combat international financial crisis and alleviate its negative effect in last section.