Africa Stock Markets Cross-Market Linkages: A Time-Varying Dynamic Conditional Correlations (DCC-GARCH) Approach (original) (raw)

Analysis of financial contagion in influential African stock markets

Future Business Journal, 2021

Drawing from the experience of the global financial crisis that sprang forth from the US stock market, an empirical assessment of the dynamic correlation analysis of financial contagion with evidence from (5) African countries (South African, Nigeria, Egypt, Kenya, Tunisia) is presented. Monthly stock prices indices from 2004 to 2018 was analyzed using the dynamic conditional correlation multivariate GARCH model to ascertain the contagious effect of the US to the selected African markets. By analyzing the correlation coefficient series, three phases of the crisis periods were identified {pre-crisis (2004–2007); crisis (2007–2009) and post-crisis (2009–2018), respectively}. The study revealed that a significant relationship exists between the returns of the US market and the African markets. The inspection of the pre-crisis, crisis, post-crisis mean and variance estimation shows that the crisis period is characterized by substantial increases in volatility, establishing that the shoc...

Modelling Financial Contagion in the South African Equity Markets Following the Subprime Crisis

Journal of Economics and Behavioral Studies

This paper used wavelet analysis and Dynamic Conditional Correlations model derived from the Multivariate Autoregressive Conditional Heteroskedasticity (MGARCH-DCC) to investigate the possible presence of financial contagion in the South African equity market in the wake of the subprime crisis that occurred in the United States. The study uses Dornbusch, Park and Claessens’s (2000) broader definition which asserts that financial contagion only takes place if cross-correlation between two markets is relatively low during the tranquil period, and that a crisis in one market results in a substantial increase cross-market correlation. Using wavelet analysis, the study found high levels of correlation during the subprime financial crisis in both smaller and longer timescales. In the former, high correlation was identified as financial contagion, whereas in the latter it was found to indicate co-movement due to financial fundamentals. The high correlation was identified for small scales 3...

Returns Correlation Structure and Volatility Spillovers Among the Major African Stock Markets

2012

The paper analyses the structure of returns comovements and the volatility spillovers among the African stock markets using daily data for the period 2000-2010. We particularly focus on two issues: whether the stock markets of countries with close trading and financial links are more sychronised, and whether the financial crises influences volatility spillovers. Econometric models used include the Factor Analysis (FA), the Vector Autoregressive (VAR) and the GARCH. Our findings suggest that linkages among the African stock markets only exist along regional blocs. South Africa is found to be both the most dominant and most endogenous stock market. Most of the markets exhibit evidence of asymmetry and persistence in volatility. The results also show that it is important to account for structural change in volatility during financial crises when modelling volatility. We outline the investment and policy implications of the findings.

Financial Market Contagion During the Global Financial Crisis: Evidence from the Moroccan Stock Market

International Journal of Financial Markets and Derivatives , 2014

In this paper, we aim at the study of the contagion of the global financial crisis (2007–2009) on Moroccan stock market. Our study focuses to examine whether contagion effects exist on Moroccan stock market, during the current financial crisis. Following Forbes and Rigobon (2002), we define contagion as a positive shift in the degree of comovement between asset returns. We use stock returns in MASI, CAC, DAX, FTSE and NASDAQ as representatives of Moroccan, French, German, British and US markets, respectively. To measure the degree of volatility comovement, time–varying correlation coefficients are estimated by flexible dynamic conditional correlation (DCC) multivariate GARCH model. We investigate empirical studies using the DCC–GARCH framework to test the contagion hypothesis from US and European markets to the Moroccan one.

Stock Market Volatility Spillover in West Africa: Regional and Global Perspectives

2018

This study examines volatility spillover between stock markets in the West African region, and with the United States of America (US) and United Kingdom (UK) stock markets using the Exponential Generalized Autoregressive Conditional Heteroscedastic (E-GARCH). Daily stock market index returns from 2008-2016 were analysed considering two sub-sample periods representing periods of turbulence and tranquil. Findings from the study reveal that there is the presence of significant volatility spillover effects between stock markets in the West African region and also with major global markets of US and UK. Significant changes are also observed in the direction, magnitude and sign of impact during the period of crises and in the post crises period. The results of this study is important to local, regional and international investors, market participants and regulatory bodies as it implicates on portfolio diversification strategies, capital controls policies and efforts towards regional stock...