Contagion channels and mechanisms of the subprime mortgage crisis in global financial markets

Based on contagion identification, this paper studies contagion channels and mechanisms of the U.S. subprime mortgage crisis. The securities markets of 25 economies are divided into non-contagious and contagious groups by using the adjusted volatility regression model. The 16 key indicators which represent the five contagion channels including macroeconomic fundamentals, trade, financial, regional and debt are selected to conduct both sectional and panel logit regression. The sectional model finds regional, financial and debt channels determine the probability of contagion. The panel model shows that trade and financial channel are main transmission channels. Bank capital asset ratios are significant but with opposite sign in both models, indicating that in the short term, although with high capital assets rates a number of banks bust due to the rapid crisis broken but in the long term the higher the rates, the greater to resist contagion.