Study On The Contagion Effect Of The US Subprime Crisis

With the development of economic globalization, the financial industry as the tertiary industry has developed rapidly, and the role has become increasingly important in a country's economy. But the high-speed development is not always easy, the frequent outbreak of the financial crisis since the 1990s gives the governments, financial institutions and investors a warning. More and more scholars began to study the financial crisis. We find that financial crisis always starts from a nation and then transmitted to other countries through trade, finance and investor psychology expectations and other channels looking at a few typical financial crisis. Infection is not a one-way process but often the infected country infect the root of the country again which triggered more serious financial crisis, so we can find that the crisis contagion is very complex process.Traditional research methods are generally linear methods, which are not able to describe the the non-linear characteristics of the crisis contagion. Therefore, we take the nonlinear dynamics method which can analyze the nonlinear characteristics of the crisis contagion. It is significant for us to guard against financial crisis and risk management.This paper based on financial crisis contagion and then describes the US subprime mortgage crisis, and then analyzed the infection effect using the theoretical knowledge and relevant data. Next this paper takes the US subprime mortgage crisis as the sample, we select the stock index of the United Kingdom, the United States and other seven countries (regions)to do empirical analysis. This paper has some innovations innovation:(1)This paper analyzes the financial crisis contagion effect using the nonlinear dynamics which is more accurate comparing to the simple correlation coefficient method, VAR and other methods;(2)This paper usesthe nonlinear BDS test method, the largest Lyapunov exponent the Hurst exponent to test the nonliner characteristic.(3) This paper calculates the similarity index and get the correlation matrix of the crisis period and economic stability period.Then this paper analyzes the financial crisis contagion effect according to the empirical results.This paper gets the following conclusions from the second part:(1) The effect includes the trade spillovers contagion effects, financial spillovers contagion effects, pure contagion effects and monsoon contagion effects;(2) The more closely linked between countries in trade and finance, or more similarities between the countries,the chance get infected is bigger. Through the empirical study we conclude that:(1)It's reasonable to use the nonlinear dynamics to analyze the financial crisis contagion effect;(2)When the financial crisis broke out,the correlation among countries strengthen, so the financial crisis contagion has also strengthened; (3)The contagion effect which is ordered descendingly is:United Kingdom, Hong Kong SAR, Germany, France, Japan and China's mainland;(4)The more closely linked between countries in trade and finance, the chance get infected is bigger;(5) A country or region which is high degree of openness is more vulnerable to get infection; (6) The countries which have more similarities in economy,politics and culture are infected more easily. This paper provides policies and suggestions for the prevention of financial crisis and risk management.