This paper investigates volatility linkages and financial contagion via the asset price channel from the US and Europe to East Asia during the 2007–2011 global financial crisis. Following crisis contingent theories, financial contagion is modeled as the structural change in transmission mechanism after a shock in one country (shift-contagion). Using Markov-switching vector autoregression and multivariate unconditional correlation tests, this study not only addresses the theoretical assumptions about multiple equilibria and nonlinear linkages, but also handles the problems of heteroskedasticity, endogeneity, simultaneous equations and sample selection bias. The empirical results show a significant nonlinear dynamic behaviour of asset returns and volatility interactions across-countries. The volatility spillovers from the US and Europe to East Asian financial markets were mainly caused by fundamental links, apart from in Thailand, which experienced shift-contagion caused by investor behaviours. There is also evidence of the intensified intra-regional linkages in the event of an external shock.