Before revision:  We find evidence for significant contagion effects during the major EU crisis periods of May 2010 and August 2011, where contagion is defined as excess correlation in the residuals from a factor model incorporating global and regional market risk factors.
After revision:  The fundamental conclusion of our analysis is that great care is needed in modeling volatility if one wishes to characterize the relationship between volatility and contagion that is predicted by economic theory. In analyzing daily data, we find evidence for significant contagion effects during the major EU crisis periods of May 2010 and August 2011, where contagion is defined as excess correlation in the residuals from a factor model incorporating global and regional market risk factors.