Volatility spillover effect analysis of African emerging stock exchange markets: 2018–2023

Humphred Watard (), Saidou Baba Oumar and Nkiendem Felix
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Humphred Watard: The University of Maroua
Saidou Baba Oumar: The University of Bamenda
Nkiendem Felix: The University of Maroua

SN Business & Economics, 2024, vol. 4, issue 10, 1-30

Abstract: Abstract This paper focuses on the volatility spillover effects amongst emerging African stock exchange markets, modelling the stock returns volatility using both univariate and multivariate generalised autoregressive conditional heteroskedasticity models to investigate spillover effect. The aim of the study is to investigate opportunities for investor’s portfolio diversification and risk management. The results indicate that conditional volatility shocks are quite persistent both in the short and long-run, captured by the autoregressive conditional heteroskedasticity and generalised autoregressive conditional heteroskedasticity effects, respectively. This means that each market’s volatility depends on its own lagged squared residual and volatility. The presence of asymmetric effects in the volatility of the African stock exchange markets under study are captured by the Glosten-Jarannathan-Runkle and exponential generalised autoregressive conditional heteroskedasticity models. The coefficients estimated, from the conditional mean returns equation show that all the markets are highly integrated, responding to their own country stock market information. From the estimates of the exponential generalised autoregressive conditional heteroskedasticity model, Egypt, Kenya, Mauritius, Morocco and Namibia stock exchange markets observed the presence of leverage effect. While Gabon, Ghana, and Zimbabwe stock exchange markets react more to good news than to bad news and surprisingly, Namibia Stock Exchange market was observed to react negatively to good news even though it also has leverage effect. Investors are advised to pay attention to good news that enters the stock exchange markets of Gabon, Ghana and Zimbabwe, as they may cause turbulence, contrary to rational expectations of tranquillity.

Keywords: Stock exchange market; Co-movements; Volatility; Spillover (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s43546-024-00721-7

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