Connectedness and Shock Propagation in South African Equity Sectors during Extreme Market Conditions

Babatunde S. Lawrence, Adefemi A. Obalade () and Mishelle Doorasamy
Additional contact information
Babatunde S. Lawrence: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Private Bag X 54001, Durban 4000, South Africa
Adefemi A. Obalade: Department of Finance, University of the Western Cape, Private Bag X17, Bellville 7535, South Africa
Mishelle Doorasamy: School of Accounting, Economics and Finance, University of KwaZulu-Natal, Private Bag X 54001, Durban 4000, South Africa

JRFM, 2024, vol. 17, issue 10, 1-20

Abstract: This study examined the connectedness and propagation of risk in the South African equity sectors during the Global Financial Crisis (GFC), the European Debt Crisis (EDC), the US–China trade war, and the COVID-19 pandemic. Daily returns of nine Johannesburg Stock Exchange (JSE) super sectors were examined from 3 January 2006 to 31 December 2021. Applying the connectedness matrix and time-varying parameter vector autoregressive (TVP-VAR) model, in full sample and sub-periods, the study showed that dynamic total connectedness of the super sectors is high in absolute form (62%). Furthermore, it was found that the highest volatility connectedness was during the EDC (68.83%) and during the COVID-19 pandemic (68.57%), followed by the GFC (63.16%) and lastly the US–China trade war (42.09%), respectively. This suggests that the tendency for a systemic risk is highest during the EDC, COVID-19, and GFC periods, and lowest during the US–China trade war. The financial sector was the primary net-transmitter of shocks during the COVID-19 period, while the automobile and parts sector was the strongest net-transmitter of shocks during the GFC, EDC, and US–China trade war. Similarly, the strongest net recipient of shocks during GFC, EDC, and COVID-19 is the chemical super sector. The study concludes that there is a significant volatility connectedness among JSE super sectors. In addition, the JSE super sectors exhibit time-varying connectedness during extreme events. Moreover, the net-transmitter and net-receiver of shock do not change significantly during different crisis periods. The policy implications of the findings are highlighted in the concluding section.

Keywords: dynamic connectedness; TVP-VAR; financial networks; equity sectors; volatility; spillovers (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/17/10/441/pdf (application/pdf)
https://www.mdpi.com/1911-8074/17/10/441/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:17:y:2024:i:10:p:441-:d:1490026

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().