The Enders and Siklos (2001) asymmetric threshold co-integration model was applied to examine the long-term asymmetric equilibrium relationships between the U.S. and three major European and the U.S. and three major Latin American stock markets around the subprime mortgage crisis. First, from the major empirical results of our research, we have found that partially asymmetric co-integration relationships between the U.S. and European and the U.S. and Latin American stock markets has increased during the crisis, which partly supports the “contagion effect” and partly supports the “interdependence effect” of the international stock markets, which was proposed by Forbes and Rigobon (2001). Hence, the event of the subprime mortgage crisis enhanced partial co-movement between the U.S. and European and the U.S. and Latin American stock markets, except the Brazil stock market, which demonstrated only the interdependence effect with the S&P 500 index. Therefore, if the investors in these countries want to diversify risks by utilizing the investment portfolios of the stock markets in the U.S. and their own countries, they should cautiously consider the correlations of the categories of industries before making any investment during the subprime mortgage crisis. The subprime mortgage crisis, which is different from previous financial crises in emerging markets, reveals that the financial linkage of a country to the U.S. markets determines the degrees of contagion effects.
Studies on Financial Markets in East Asia, pp.19-39