This paper empirically investigates the contagion effects of the Global
Financial Crisis (2007-2009) from the financial sector to the real economy
by examining nine sectors of US and developed European region. We provide a
regional analysis by testing stock market contagion on the aggregate level
and the sector level, on the global level and the domestic/regional level.
Results show evidence of global contagion in US and developed European
aggregate stock market indices and all US sector indices, implying the
limited benefits of portfolio diversification. On the other hand, most of
the European regional sectors seem to be immune to the adverse effects of
the crisis. Finally, all non-financial sectors of both geographical areas
seem to be unaffected by their domestic financial systems. These findings
have important implications for policy makers, investors and international
organizations.