**1. Introduction**

Since the 1990s, many widespread financial crises have been witnessed such as the Exchange Rate Mechanism (ERM) attacks in 1992, Mexican "Tequila" crisis in 1994, Asian "flu" crisis in 1997, the Russian collapse in 1998, the Brazilian devaluation in 1999, the US subprime crisis in 2007 and more recently, the Greek and European sovereign debt crisis in 2011. One common feature of these crises is that they have provoked economic depressions not only for the crisis-originating market but also for the others. This phenomenon is usually described as "contagion". The question about how an initial shock of one market could be transmitted to the others have attracted as much attention of policy makers as academic researchers, especially after Asian crisis in 1997. The latter have so far investigated the transmission mechanisms of the crises and the existence of contagion phenomenon across financial markets.

Understanding contagion effect of financial crisis, especially the channels through which crisis is transmitted, would provide important implications for policy makers. It will help to adopt appropriate policy measures in order to reduce the vulnerability of a country to an external shock. Policy implications differ depending on shock propagation through fundamentals or shock propagation unrelated to fundamentals (Forbes and Rigobon (2002)). If the crises are channeled through short-run linkages which only exist after the crisis occurs (i.e., investors' behavior) then temporary measure like liquidity assistance can be a helpful response. Otherwise, if the crises are transmitted through permanent linkages, such as trade or financial linkages, liquidity support might only delay the transmission of a crisis from one country to another but cannot be effective in reducing a country's vulnerability to a crisis. In this case, policy measures improving the fundamentals are necessary (Moser (2003)).

Up to now, there are many studies investigating the existence of contagion during financial crises. However, their results are not all compatible with one another. It depends how "contagion" is defined and empirical method used to detect for contagion. All of these issues will be discussed in Section 2. The results of King and Wadhwani (1990) support for contagion effects during the stock market crash in 1987. Calvo and Reinhart (1996) find evidence of contagion during the Mexican crisis. Baig and Goldfajn (1999) also find the presence of contagion during the Asian crisis in 1997. However, Forbes and Rigobon (2002) reexamine contagion effects during these three crises with tests corrected for heteroskedasticity biases and find *no contagion, only interdependence* 1. On the other hand, Corsetti et al. (2005) reconsider the international transmission of shocks from the Hong Kong stock market crisis in October 1997 during the Asian crisis and find *some contagion, some independence*. They find evidence for contagion for 5 countries in the sample of 17 including Singapore, the Philippines (among the emerging markets) and France, Italy and the UK (among the industrial countries). Concerning the US subprime crisis, Horta et al. (2008) find evidence for effects of financial contagion from the US subprime crisis in G7 markets. Naoui et al. (2010) also find contagion effects from US toward some emerging (India, Malaysia, Singapore, China, Hong Kong and Tunisia) and developed markets (France, Germany, Italy, Netherlands and United States).

In this paper, we investigate again the presence of contagion effects in Asian and Latin American stock markets during three major crises: the Mexican "Tequila" crisis in 1994, the Asian "flu" crisis in 1997, and the US subprime crisis in 2007. We consider the contagion as the significant increase of assets' price co-movements after a shock in a country, as labeled "shift contagion" by Forbes and Rigobon (2000). In the first step, we employ multivariate DCC-GARCH models proposed by Engle (2002) to examine how dynamic conditional correlations across markets vary in time. We apply this kind of model in order to capture the dynamics of conditional correlation. In the second step, we use *t*-tests to compare the correlations between markets' returns in stable period and turmoil period. If there is an increase of these correlations after a shock then contagion occurs.

The contribution of this paper is that we study the contagion risks among some selected emerging countries in Asia and Latin America during three major crises: one occurred in Latin America, one in Asia, and one in US after their financial liberalisation. The results will show us how the financial contagion spills over to these countries during the crises and help us to compare the contagion effects of the three crisis. In fact, most of emerging countries began their financial liberalization in late 1980s and early 1990s. Theoretically, financial markets become more integrated as a result of the liberalization process and hence, they may suffer greater contagion from external shocks. As a consequence, market liberalization, accompanied by market integration, may lead to increased contagion risks. The results of this paper will show us somehow the effects of financial liberalization in emerging markets which is necessary for policy makers. The paper is structured as follows. Section 2 presents a brief review of the literature. Section 3 offers the methodology employed. Section 4 presents the data and statistics of stock returns. Section 5 discusses empirical results. Section 6 draws conclusions.
