In the context of interdependence of the financial markets, it becomes interesting to analyze the effects of the terrorist attacks of September 11, 2001, in USA, on the different financial markets. The paper attempts to demonstrate the occurence of a contagion effect among few important international stock markets, by comparing two contrasting periods—the pre-attack period and the post-attack period. The results obtained by estimation of a vector autoregressive model detect cointegrating relationships among the different stock indexes. A dynamic analysis is conducted, using the block exogeneity tests to check the existence of causality relations. The contagion effect initiating from the USA, which yielded greater volatility, with a positive sign in two European stock markets—the Portuguese and the English stock markets—is ratified.

The process of globalization of the financial markets has implicated deep transformations in the international stock markets. The transformations of the relationships among the different stock markets have been analyzed making use of the correlation coefficients and the simultaneous equation models, and more recently by using the vector autoregressive (VAR) models. This paper aims to demonstrate the existence of interdependences among some of the important international stock markets, and the occurrence of a contagion effect on the European Stock Markets, taking the terrorist attacks of September 11, 2001, in USA, as the reference point. For this purpose, a previously selected specification of a vectorial autoregressive model is used in order to evaluate the relationships among the main stock markets, firstly in the preattack period and later in the post-attack period.

The present work is structured in two parts. In the first part, a revision of the relevant economic theory is made, in order to subsequently, develop an econometric approach which is related to the analysis of contagion. In the second part, an econometric approach is developed, by making a brief review of some of the empirical studies that use VAR models in contagion analysis.

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