We conduct an empirical investigation into the pricing of subprime assetbacked CDOs and their contagion effects on other markets. Using data for the ABX subprime indexes, we find strong evidence of contagion in the financial markets. These contagion effects spread first from lower-rated ABX indexes to higher-rated ABX indexes, and then from the subprime markets to the Treasury bond and stock markets. Surprisingly, ABX index returns forecast stock and Treasury bond returns by as much as three weeks ahead during the crisis. Furthermore, ABX index shocks map into contractions in the short-term credit markets and increases in the trading activity of financial stocks over the next several weeks. These results support the hypothesis that financial contagion was spread through liquidity and risk-premium channels.