Analysis of Crisis Contagion in the European Sovereign Debt Crisis Based on MATLAB: Will Macau be the Next Greece?

The European Debt crisis originated in Greece in 2009 and consequently spread across national borders, resulting in a global recession. Eurozone countries failed to finance their budget deficits as confidence in global financial markets weakened. This paper tested for the contagion effects in the Eurozone, Asia, and the United States stock markets during the European Sovereign Debt Crisis. By employing the Pearson correlation coefficient, Spearman correlation and Kendall coefficient, we measured the correlation between Greece and regions including Germany, the United Kingdom, the United States and Hong Kong. Following that, four copula functions are applied to evaluate the tail dependence: Gaussian copula, Student’s T copula, Clayton copula and Gumbel copula. Semi-parameter Conditional Maximum Likelihood Estimation and the built-in Matlab program are used for estimation. Then, we proposed a transmission model based on the liquidity theory, which explains the correlation and elucidates the mechanisms of contagion, underlying comparisons between Macau and Greece. The empirical results indicate that contagion is evident between the stock market of Greece and those of Hong Kong and Germany, albeit for different reasons. Finally, suggestions are given to the Macau government to avoid following Greece’s tragic path.