Financial contagion and capital asset pricing in Africa: The impact of the 2007–09 and Euro-Zone crises on natural resources sector Beta in African emerging markets

Uchenna Tony-Okeke, Jaliyyah Ahmadu-Bello, Jacek Niklewski and Timothy Rodgers

Research in International Business and Finance, 2018, vol. 45, issue C, 54-61

Abstract: This paper contributes to the literature by extending the interpretation of financial contagion beyond that of the market correlation approach popularised by Forbes and Rigobon (2002). Contagion is explored from the perspective of its impact on the conditional sector-risk Beta of the African Emerging Market natural resources sector. A multi-factor CAPM model is developed within a DCC-MGARCH framework to estimate time-varying Beta. We find that this reacts in different ways to different contagion events. It rose by a statistically significant 0.058 (an 8% increase) in response to the euro-zone crisis. However, with the exception of South Africa, the 2007–09 crisis was found to have no significant impact on Beta. We speculate that the differences found can be attributed to the different ways in which individual contagion events impact on individual markets. From this we conclude that ‘one size fits all’ correlations-based contagion analysis can often hide as much as it reveals.

Keywords: Financial crisis; Contagion; Conditional beta; African emerging markets (search for similar items in EconPapers)
JEL-codes: C58 G01 G12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:45:y:2018:i:c:p:54-61

DOI: 10.1016/j.ribaf.2017.07.131

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