Financial contagion: geographical proximity or trade link?

We found the presence of contagion effects during the recent Global Finance Crisis. The shocks stemming from US shocks did cause excessive impacts in other stock markets. This finding did not appear in all markets, only Argentina, Canada, Mexico and Japan exhibited statistically significant signs of contagion. An important problem which arises from these findings is identifying why only Argentina, Canada, Mexico and Japan appear to be the only markets affected. We used Panel model found contagion through geographical proximity of a country impacted on the severity of contagion. We also investigate whether trade was the true culprit behind the contagion phenomenon during the GFC and found overall trade was not a significant determinant of contagion. Our paper supports the findings in Collins and Gavron (2004) which suggest contagion maybe a culmination of multiple linkages factors.