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Dynamic spillovers between Nigerian, South African and international equity markets

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  • Fowowe, Babajide
  • Shuaibu, Mohammed

Abstract

This paper examines the dynamic interdependence and extent of integration between South African, Nigerian and international equity markets. The study made use of a new methodology for computing spillovers within and between markets, which utilizes a generalized VAR framework that produces forecast error variance decompositions and also accounts for correlated shocks using historically observed distribution of the errors. The empirical results revealed that return and volatility spillovers between the Nigerian and South African markets and major international equity markets are substantial when markets from various regions are considered together. For the regional analysis, it was found that the Nigerian and South African markets have greater interdependencies with Asian markets than with European markets. The results also showed that the South African market is more integrated with international markets than the Nigerian market. A crucial finding is that the lowest spillover index recorded was between the Nigerian and South African markets. This does not bode well for African integration and suggests that more efforts need to be channeled towards enhancing financial integration within Africa.

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  • Fowowe, Babajide & Shuaibu, Mohammed, 2016. "Dynamic spillovers between Nigerian, South African and international equity markets," International Economics, Elsevier, vol. 148(C), pages 59-80.
    • Handle: RePEc:eee:inteco:v:148:y:2016:i:c:p:59-80
    DOI: 10.1016/j.inteco.2016.06.003
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    2. Zeng, Ting & Yang, Mengying & Shen, Yifan, 2020. "Fancy Bitcoin and conventional financial assets: Measuring market integration based on connectedness networks," Economic Modelling, Elsevier, vol. 90(C), pages 209-220.
    3. Ji, Qiang & Bouri, Elie & Lau, Chi Keung Marco & Roubaud, David, 2019. "Dynamic connectedness and integration in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 257-272.
    4. Adeabah, David & Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2023. "How far have we come and where should we go after 30+ years of research on Africa's emerging financial markets? A systematic review and a bibliometric network analysis," Emerging Markets Review, Elsevier, vol. 55(C).
    5. Kundan Mukhia & Anish Rai & SR Luwang & Md Nurujjaman & Sushovan Majhi & Chittaranjan Hens, 2024. "Complex network analysis of cryptocurrency market during crashes," Papers 2405.05642, arXiv.org.
    6. Boakye, Robert Owusu & Mensah, Lord Kwaku & Kang, Sang Hoon & Osei, Kofi Acheampong, 2023. "Foreign exchange market return spillovers and connectedness among African countries," International Review of Financial Analysis, Elsevier, vol. 86(C).
    7. Urom, Christian & Ndubuisi, Gideon & Del Lo, Gaye & Yuni, Denis, 2023. "Global commodity and equity markets spillovers to Africa during the COVID-19 pandemic," Emerging Markets Review, Elsevier, vol. 55(C).
    8. Huynh, Toan Luu Duc & Nasir, Muhammad Ali & Vo, Xuan Vinh & Nguyen, Thong Trung, 2020. "“Small things matter most”: The spillover effects in the cryptocurrency market and gold as a silver bullet," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    9. Boako, Gideon & Alagidede, Paul, 2018. "African stock markets in the midst of the global financial crisis: Recoupling or decoupling?," Research in International Business and Finance, Elsevier, vol. 46(C), pages 166-180.
    10. Liu, Jianjian & Wang, Shuhan & Xiang, Lijin & Ma, Shiqun & Xiao, Zumian, 2024. "Unveiling hidden connections: Spillover among BRICS' cryptocurrency-implied exchange rate discounts and US financial markets," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    11. Gourène, Grakolet Arnold Zamereith & Mendy, Pierre & Ake N'gbo, Gilbert Marie, 2017. "Multiple time-xcales analysis of global stock markets spillovers effects in African stock markets," MPRA Paper 77632, University Library of Munich, Germany.
    12. Muhammad Hanif & Ariba Sabah, 2020. "Stock Markets’ Integration in Post Financial Crisis Era: Evidence from Literature," Capital Markets Review, Malaysian Finance Association, vol. 28(2), pages 43-71.
    13. Mukhia, Kundan & Rai, Anish & Luwang, S.R. & Nurujjaman, Md & Majhi, Sushovan & Hens, Chittaranjan, 2024. "Complex network analysis of cryptocurrency market during crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 653(C).

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    More about this item

    Keywords

    Stock return; Volatility transmission; Spillovers; Variance decomposition;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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