Abstract
The main goal of this study is to examine how international and regional shocks are transmitted to African equity markets using a network methodology introduced and developed by Diebold and Yilmaz (Econ J 119:158–171, 2009; Int J Forecast 23:57–66, 2012; J Econom 182:119–134, 2014) with daily data ranging from January 03, 2007 till September 19, 2019. The main finding is that international and regional market shocks have heterogeneous and time-varying effects on African equity markets, the magnitude of which is explained by the degree of financial exposure and share to the world trade. Bidirectional spillovers reveal that African markets are net receivers for both return and volatility spillovers. Moreover, volatility shocks on these markets spread more vigorously than return shocks to Africa. Episodes of high spillovers emerged during the 2008 global financial and the 2012 European debt crisis. Peaks also appear when structural economic reforms or measures increasing market efficiency intervene on African markets. New to previous works on financial market spillover, we assess spillover channels in Africa employing linear panel regressions. Empirical estimates show that trade and financial exposure do not significantly explain return and volatility spillovers in African equity market. Global factors such as oil and metal prices are the main channels through which foreign shocks spread to African stock markets.
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Source: Author’s calculations. (Color figure online)
Source: Author’s calculations
Source: Author’s calculations
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Notes
As an example, the Ghana Stock Exchange (GSE) was one of the best performing markets in the world in 2014. The GSE Composite Index (GSE-CI) recorded a year to date gain of 78.81% while the GSE Financial Stock Index (GSE-FSI) posted a return of 71.81% (African Securities Exchanges Association Yearbook 2014).
BRVM is the regional stock market for all the eight member states in the West African Economic and Monetary Union (WAEMU), namely Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.
The 16 member states of SADC are Angola, Botswana, Comoros, Democratic Republic of Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia, and Zimbabwe.
The Johannesburg Equities Trading (JET) system.
As of 2018, market capitalization was US$42 billion in Egypt, US$61 billion in Morocco, US$31.5 billion in Nigeria, and US$865.3 billion in South Africa.
This is consistent with the relatively low number of listed firms on these stock markets.
Annual directional spillovers are measured by computing averages of daily directional spillovers.
Net transmitter means that total outward spillovers (“TO”) are greater than total inward spillovers (“FROM”), whereas net receiver means that total inward spillovers (“FROM”) are greater than total outward spillovers (“TO”).
The regulatory authorities have established the Asset Management Company of Nigeria (AMCON) and have instituted zero tolerance for market infractions and compliance with post-listing requirements.
Copper prices experienced a record high in January 2011 due to a recovery in the global economy and low stockpiles after the 2008 financial crisis. The second peak observed in 2012 was the result of copper prices uncertainty on international markets during the first half of the year. Another episode of increase occurred in January 2014 when a strike in all ports in Chile pushed prices up again.
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Atenga, E.M.E., Mougoué, M. Return and volatility spillovers to African equity markets and their determinants. Empir Econ 61, 883–918 (2021). https://doi.org/10.1007/s00181-020-01881-9
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DOI: https://doi.org/10.1007/s00181-020-01881-9