How globally contagious was the recent US real estate market crisis? Evidence based on a new contagion test

Abstract

This paper utilizes a new contagion test based on case-resampling bootstrap technique to investigate whether there is any contagion effect in the interaction of the US real estate market with those of Australia, Japan and the UK arising out of the recent US real estate crisis or subprime crisis. Contrary to expectations, it is found that the relationship of the US market with the other markets following the US real estate market crisis cannot be characterized as one with contagion effect. Its relationship with the other markets is rather characterized by dependency behavior that prevails regardless whether the markets are under distress or not.