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Abstract
Markets worldwide are becoming increasingly integrated, and debate continues over the existence of contagion between domestic and foreign financial markets. This study investigated the contagion affect between the U.S. stock market and the Chinese stock market, utilizing stock returns for the S&P 500 and Hang Seng indexes before the subprime mortgage crisis and subsequent great recession. Utilizing this pre-great recession period adds to the literature on international market contagion. This study lends support to the hypothesis that volatility surprises are transmitted internationally from the United States to China, as proxied by these indexes, and that this market contagion existed prior to the recent great recession. This research could be useful in setting regulatory policy on stock market circuit breakers during periods of extreme volatility.