Abstract
This paper examines the changing correlations between US stock market and other stock markets such as Japan, German and Australia stock markets during the recent global financial crisis (2007-2008) by using VCM GARCH model proposed by Tsui and Tse (2002). The result suggests that correlation between US and Japan stock market increased during the turmoil period; this is evidence of contagion effect. However, conditional correlation between US-German and US-Australia remained high over the whole period; this is evidence of interdependence. Therefore, we conclude that there are some contagion effect and interdependence during the global crisis. With such high correlation, benefit of international portfolio diversification lowers over time