In this paper, we test the hypothesis of contagion in the subprime mortgage crisis by applying the theory of copulas to measure the contagion among a sample of eight emerging and eight developed markets. The empirical results show that this new approach proves more appropriate to describe the non-linear and complex dynamics of the financial market returns than traditional modeling which imply a normality hypothesis. In addition, this study confirms the contagious nature of the crisis between emerging and developed markets.

This paper examines the extent of the current financial Greek crisis and the contagion effects it concludes toward the euro zone by conducting an empirical investigation of the dependence structure between seventeen European stock markets during the period 2007-2011. In particular, several copula functions are used to model the degree of cross-market linkages. The model is implemented with a GARCH model for the marginal distributions and the student-t copula for the joint distribution which allows capturing nonlinear relationships and offers significant advantages over econometric techniques in analyzing the co-movement of financial time-series. Our empirical results show that there is strong evidence of market dependence in the euro area. However, the dependence remains significant but weaker, for the major of stock markets, after the occurrence of the Greek crisis.