The implication of cryptocurrency volatility on five largest African financial system stability

Tonuchi E. Joseph (), Atif Jahanger, Joshua Chukwuma Onwe and Daniel Balsalobre-Lorente ()
Additional contact information
Tonuchi E. Joseph: Central Bank of Nigeria
Joshua Chukwuma Onwe: Federal Polytechnic Ohodo
Daniel Balsalobre-Lorente: University of Castilla La Mancha

Financial Innovation, 2024, vol. 10, issue 1, 1-19

Abstract: Abstract This study examined the interconnectedness and volatility correlation between cryptocurrency and traditional financial markets in the five largest African countries, addressing concerns about potential spillover effects, especially the high volatility and lack of regulation in the cryptocurrency market. The study employed both diagonal BEKK-GARCH and DCC-GARCH to analyze the existence of spillover effects and correlation between both markets. A daily time series dataset from January 1, 2017, to December 31, 2021, was employed to analyze the contagion effect. Our findings reveal a significant spillover effect from cryptocurrency to the African traditional financial market; however, the percentage spillover effect is still low but growing. Specifically, evidence is insufficient to suggest a spillover effect from cryptocurrency to Egypt and Morocco’s financial markets, at least in the short run. Evidence in South Africa, Nigeria, and Kenya indicates a moderate but growing spillover effect from cryptocurrency to the financial market. Similarly, we found no evidence of a spillover effect from the African financial market to the cryptocurrency market. The conditional correlation result from the DCC-GARCH revealed a positive low to moderate correlation between cryptocurrency volatility and the African financial market. Specifically, the DCC-GARCH revealed a greater integration in both markets, especially in the long run. The findings have policy implications for financial regulators concerning the dynamics of both markets and for investors interested in portfolio diversification within the two markets.

Keywords: African financial market; BEKK-GARCH; Cryptocurrency; DCC-GARCH; Volatility spillover (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1186/s40854-023-00580-5 Abstract (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:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-023-00580-5

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-023-00580-5

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().