Transmission of the U.S. subprime crisis and the European sovereign debt crisis to emerging markets

This paper evaluates the transmission of the U.S. Subprime Crisis and the European Sovereign Debt Crisis to sixteen emerging markets. A GARCH model is formulated to test for the transmission of shocks and for transmission effects through financial channels. The bankruptcy of Lehman Brothers and the Greek debt restructuring are used as breakpoints for these sub-periods. The U.S. stock market has a significant transmission effect on emerging markets at the early stage of the crises and normal time, whether in terms of a contemporaneous day or a one-day lag time.