Testing for causality-in-mean and in-variance among the U.S., China, and some Africa capital markets: A CCF approach

Osabuohien-Irabor Osarumwense ()
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Osabuohien-Irabor Osarumwense: Department of International Economics, School of Economics, Ural Federal University, Ekaterinburg, Russia

Journal of Economics and Management, 2021, vol. 43, issue 1, 131-153

Abstract: Aim/purpose – Owing to the huge risk occasioned by negative contagion effects associated with financial market linkages, markets participants and academia have continued to examine the capital market cross country interdependence at different levels. In this paper, we examined the causal relationships among the U.S., China and some top African capital market indexes. Design/methodology/approach – To examine the mean and variance causal effects, we estimated a univariate AR-EGARCH model for all capital market indexes. Then employed the residual-based two-step bivariate cross-correlation function (CCF) test developed by Cheung & Ng (1996). The test statistics had a well-defined asymptotic standard distribution that was robust to distributional assumptions. Findings – We detected both the feedback and unidirectional causality effects among African capital markets. These results show that African financial markets are still not fully integrated within the African continent. Expectedly, the results from our empirical analysis showed the existence of a unidirectional causality both in mean and variance from the U.S. and Chinese markets to African capital markets. This demonstrated that events in the U.S. and China are not irrelevant to African markets. Research implications – Owing to the fact that knowledge of other financial markets provides adequate information about a market situation, the results from this research paper will be helpful for the policymakers of African countries in shaping their economic policies, help investors diversify investments with less risk, and international portfolio managers make portfolio allocation decisions. Originality/value/contribution – This paper examined the mean and risk dynamics of three top African, the U.S., and Chinese capital markets with their inter-dependence using the CCF approach. Furthermore, to the best of our knowledge, no previous research paper on this issue exists.

Keywords: causality-in-mean; causality-in-variance; capital market; cross-correlation function (search for similar items in EconPapers)
JEL-codes: C20 F31 G10 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:jecman:v:43:y:2021:i:1:p:131-153:n:3

DOI: 10.22367/jem.2021.43.07

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