Financial market integration, contagion and volatility transmission: a case of the globally developed markets and developing stock markets in Africa

The widespread impact of the 2007 global financial crisis and the subsequent Eurozone sovereign debt crisis added new impetus to the on-going international discussions about the sustainability of a financial integration model. Moreover, the crisis revealed the complexity of the international transmission of financial shocks and the financial vulnerabilities of different financial markets. More so, it exposed the major weaknesses in our knowledge of how the forces that drive global financial systems operate. This is compounded by a failure to appreciate the scope of interdependencies that exist across markets and their potential to destabilise the global financial system in times of crises. At the heart of this weakness is the inability to accurately understand the various propagation mechanisms and channels through which a crisis from one market is transmitted to other markets. It is against this background that this study is undertaken, in order to empirically investigate the role of financial market integration, contagion and volatility transmission, using weekly data between the period 3 January 2003 to 26 December 2014. The study covers 27 stock markets, comprising 13 African stock markets, 10 developed stock markets and four emerging stock markets. The study employed two empirical frameworks: the first framework focused on the short-run and long-run relationships between African stock markets and major global stock markets using the Johansen co-integration test, Granger causality test, GIRF and GFEVD. The second framework focused on testing evidence of contagion and volatility transmission using the DCC-GJRGARCH model and AS model. The results show that the majority of African stock markets moved together in the long-run with the major global stock markets during the pre-crisis and Eurozone crisis periods. While the long-run relationship between African stock markets and the major global markets disappeared during the period of the global financial crisis, the relationship re-emerged during the Eurozone crisis period. From the analysis of Granger causality test, the results show some differences exist in terms of the relative strength of the causal linkages across markets and periods. However, it was shown that strong causal linkages emerged during the global financial and Eurozone crisis periods relative to the pre-crisis period. Also, the leading role of the major developed markets, compared to the emerging markets, is demonstrated throughout the analysis of causality tests. Moreover, the sensitivity of African markets to shocks from the global markets was clearly highlighted by analysis of the GIRF and GFEVD, especially during both crisis periods. Furthermore, the results from the AS model confirm significant evidence of mean and volatility spill-over effects from the major global markets to African markets especially during the periods of both crises. In addition, the level of volatility was found to be more persistent and asymmetric during both crisis periods compared to the pre-crisis period. The results confirm the existence of contagion effects through the analysis of the conditional correlation during both crisis periods. More importantly, the analysis of conditional correlation emphasised evidence of heightened co-movement between African markets and the major global markets during the periods of crisis. Consequently, the decoupling phenomenon is rejected in favour of synchronisation of business cycles between African stock markets and the major global markets. The findings of this study have several important implications for the policymakers and investors in Africa and the world at large. The findings of this study not only provide some information about the level of financial integration but also the effect of growing financial linkages between African markets and the global markets, which is important for designing appropriate regulatory frameworks. Also, the knowledge about the dynamic interrelationship in terms of contagion and volatility transmission between African markets and the major global markets can be utilised by investors, and thereby help them to make better investment decisions. Consequently, the findings of this study point to a need for policymakers in general and in Africa in particular, to monitor closely changes in financial development in other markets in order to reduce the vulnerability of domestic markets to external shocks. To mitigate the impact of the external shocks, greater co-operation and co-ordination, with proper supervision of different markets‟ fiscal and monetary policies, should be encouraged. Such policies need to be carefully aligned with the objective of external sustainability. This can be achieved through strategic partnerships and mergers, foreign institutional investments, cross market listing of shares, corporatisation of exchanges and the introduction of private ownership. Above all, effective regulation is needed to realise the benefits of financial market integration

Trends and volatility in residential property prices in South Africa

This study sought to empirically investigate trends and volatility in residential property prices in South Africa using quarterly data over the period 1980Q1 to 2011Q4. The empirical analysis uses a range of unit root and stationarity tests as well as a number of ARCH-family of models. The results from the trend analysis suggest that the behaviour of house prices in South Africa follows a random walk process. The randomness in the behaviour of house prices could be attributed to permanent effect of shock. Investigation into the dynamic behaviour of the house prices supports the existence of conditional volatility that is time-varying and highly persistent. Moreover, volatility is found to be asymmetric in news suggesting evidence of anti-leverage effects. These findings have important portfolio implications especially, considering the fact that large-scale losses are possible if house prices exhibit the type of persistent in behaviour as captured in this study. Also, the existence of asymmetric effects in volatility suggests that more caution needs to be placed on news arrival as they may have significant impacts on the house price behaviour. Accordingly, this study suggests the need for residential property market to be treated like other asset markets with regards to risk

Financial market integration, contagion and volatility transmission: a case of the globally developed markets and developing stock markets in Africa

The widespread impact of the 2007 global financial crisis and the subsequent Eurozone sovereign debt crisis added new impetus to the on-going international discussions about the sustainability of a financial integration model. Moreover, the crisis revealed the complexity of the international transmission of financial shocks and the financial vulnerabilities of different financial markets. More so, it exposed the major weaknesses in our knowledge of how the forces that drive global financial systems operate. This is compounded by a failure to appreciate the scope of interdependencies that exist across markets and their potential to destabilise the global financial system in times of crises. At the heart of this weakness is the inability to accurately understand the various propagation mechanisms and channels through which a crisis from one market is transmitted to other markets. It is against this background that this study is undertaken, in order to empirically investigate the role of financial market integration, contagion and volatility transmission, using weekly data between the period 3 January 2003 to 26 December 2014. The study covers 27 stock markets, comprising 13 African stock markets, 10 developed stock markets and four emerging stock markets. The study employed two empirical frameworks: the first framework focused on the short-run and long-run relationships between African stock markets and major global stock markets using the Johansen co-integration test, Granger causality test, GIRF and GFEVD. The second framework focused on testing evidence of contagion and volatility transmission using the DCC-GJRGARCH model and AS model. The results show that the majority of African stock markets moved together in the long-run with the major global stock markets during the pre-crisis and Eurozone crisis periods. While the long-run relationship between African stock markets and the major global markets disappeared during the period of the global financial crisis, the relationship re-emerged during the Eurozone crisis period. From the analysis of Granger causality test, the results show some differences exist in terms of the relative strength of the causal linkages across markets and periods. However, it was shown that strong causal linkages emerged during the global financial and Eurozone crisis periods relative to the pre-crisis period. Also, the leading role of the major developed markets, compared to the emerging markets, is demonstrated throughout the analysis of causality tests. Moreover, the sensitivity of African markets to shocks from the global markets was clearly highlighted by analysis of the GIRF and GFEVD, especially during both crisis periods. Furthermore, the results from the AS model confirm significant evidence of mean and volatility spill-over effects from the major global markets to African markets especially during the periods of both crises. In addition, the level of volatility was found to be more persistent and asymmetric during both crisis periods compared to the pre-crisis period. The results confirm the existence of contagion effects through the analysis of the conditional correlation during both crisis periods. More importantly, the analysis of conditional correlation emphasised evidence of heightened co-movement between African markets and the major global markets during the periods of crisis. Consequently, the decoupling phenomenon is rejected in favour of synchronisation of business cycles between African stock markets and the major global markets. The findings of this study have several important implications for the policymakers and investors in Africa and the world at large. The findings of this study not only provide some information about the level of financial integration but also the effect of growing financial linkages between African markets and the global markets, which is important for designing appropriate regulatory frameworks. Also, the knowledge about the dynamic interrelationship in terms of contagion and volatility transmission between African markets and the major global markets can be utilised by investors, and thereby help them to make better investment decisions. Consequently, the findings of this study point to a need for policymakers in general and in Africa in particular, to monitor closely changes in financial development in other markets in order to reduce the vulnerability of domestic markets to external shocks. To mitigate the impact of the external shocks, greater co-operation and co-ordination, with proper supervision of different markets‟ fiscal and monetary policies, should be encouraged. Such policies need to be carefully aligned with the objective of external sustainability. This can be achieved through strategic partnerships and mergers, foreign institutional investments, cross market listing of shares, corporatisation of exchanges and the introduction of private ownership. Above all, effective regulation is needed to realise the benefits of financial market integration

The Impact of Covid-19 on Oil Market Returns: Has Market Efficiency Being Violated?

This study examines the effect of COVID-19 pandemic on the efficiency of oil markets from 2nd February 2020 to 4th August 2021. By relying on dynamic conditional correlation GARCH and Wavelet coherence techniques, we able to provide correlations between the variables across time and frequency domains. Our empirical findings point to significant yet weak correlations between COVID-19 recovery/death rates for the time period extending from early February to early May even though we observe strong correlations between WTI prices and COVID-19 health statistics in mid-April. Moreover, during this identified time period, the length of frequency cycles within the correlations decreases from 16 days to 8 days. Altogether, these findings imply that oil markets were inefficient between February and early May and have since turned market efficient for the remaining duration of the pandemic.

Persistence of suicides in G20 countries: SPSM approach to three generations of unit root tests

Suicides represent an encompassing measure of psychological well-being, emotional stability as well as life satisfaction and have been recently identified by the World Health Organization (WHO) as a major global health concern. The G20 countries represent the powerhouse of global economic governance and hence possess the ability to influence the direction of global suicide rates. In applying the sequential panel selection method (SPSM) to three generations of unit root testing procedures, the study investigates whether G20 countries should be concerned with possible persistence within suicide rates. The results obtained from all three generation of tests provide rigid evidence of persistence within the suicides for most member states of the G20 countries hence supporting the current strategic agenda pushed by the WHO in reducing suicides to a target rate of 10 percent. In addition, we further propose that such strategies should emulate from within G20 countries and spread globally thereafter

Renewable energy consumption and unemployment in South Africa

The importance of renewable energy consumption has grown to a large extent over the recent years. The benefits of renewable energy consumption ranging from improved environmental quality to higher economic growth are well documented. However, the impact of renewable energy consumption on unemployment has received relatively less attention. This study examines the relationship between renewable energy consumption and unemployment in South Africa over the period 1990-2014. The Autoregressive Distributed Lag (ARDL) model was employed to test the long-run and short-run impacts of renewable energy consumption on unemployment. The results reveal that renewable energy consumption has a negative and significant effect on unemployment in the long-run. However, in the short-run the variables have an insignificant relationship. The study therefore advocates for an increase in the production and consumption of renewable energy in order to boost employment levels

Quantile connectedness amongst BRICS equity markets during the COVID-19 pandemic and Russia–Ukraine war

AbstractOur study uses the quantile vector autoregressive (QVAR) network approach to compare the median-based and tail connectedness in BRICS equity markets using daily time series spanning from 3rd March 2020 to 9th September 2022. The study is conducted on both returns and volatility series, and the findings from our static and dynamic analysis can be summarized as follows. From the static perspective, we observe stronger connectedness and spillover effects on the left and right (right only) tails for returns (volatility) series. For the returns series, China and South Africa (Brazil, Russia and India) are net receivers (transmitters) of shocks at the left tail and median quantiles whilst China and Russia (Brazil, India and South Africa) are net receivers (transmitters) at the right-tail, whereas for the volatility series China and India (Brazil, Russia and South Africa) are the net receivers (transmitters) at both quantile tails, whilst Brazil (Russia, India, China and South Africa) is (are) the net receiver(s) (transmitters) at the median. From a dynamic perspective, time-varying total connectedness is higher at the median (tail-end) quantile(s) during the COVID-19 pandemic (Russia–Ukraine war). Moreover, the time-varying market-specific analysis distinguishes which individual equities are most or least vulnerable to systemic tail-risk transmission effects during the COVID-19 pandemic and more recent Russia–Ukraine. Ultimately, these findings are relevant for investors in their search for better hedging opportunities in equity markets as well as for market regulators who can use systematic risk as an early warning signal for contagion and market crash

Co-movement between Covid-19 and G20 stock market returns: A time and frequency analysis

In our study, we employ DCC-GARCH and Wavelet coherence analysis to examine the co-movement between global covid-19 indicators (cases, recoveries and deaths) and stock returns of main equity markets in G20 countries using daily data spanning between February 2, 2020 and August 28, 2021. Our empirical results show that the co-movement between COVID-19 and G20 stock returns has been switching between negative and positive correlations across the entire time window. The wavelet coherence analysis further reveal that negative (positive) co-movements predominantly exist as lower (higher frequencies) for cases and deaths and are more mixed for recoveries. The findings also show that the short-frequency components correspond to periods around the initial announcement of the initial pandemic and also around the announced of subsequent variants of the COVID-19 virus. Policy and market implications from our study are also discussed

Utrzymywanie się samobójstw w krajach G20 w latach 1990–2017: podejście SPSM do trzech generacji testów pierwiastka jednostkowego

Suicides represent an encompassing measure of psychological wellbeing, emotional stability as well as life satisfaction, and they have been recently identified by the World Health Organization (WHO) as a major global health concern. The G20 countries represent the powerhouse of global economic governance and hence possess the ability to influence the direction of global suicide rates. In applying the sequential panel selection method (SPSM) to three generations of unit root testing procedures, the study investigates the integration properties of suicides in G20 countries between 1990–2017. The results obtained from all three generations of tests provide rigid evidence of persistence within the suicides for most member states of the G20 countries, hence supporting the current strategic agenda pushed by the WHO in reducing suicides to a target rate of 10 percent. In addition, we further propose that such strategies should emanate from within G20 countries and spread globally thereafter.Samobójstwa stanowią wszechstronną miarę dobrego samopoczucia psychicznego, stabilności emocjonalnej, a także satysfakcji z życia, a ostatnio zostały uznane przez Światową Organizację Zdrowia (WHO) za główny problem zdrowotny na świecie. Państwa G20 są potęgą w obszarze globalnego zarządzania polityką gospodarczą, a tym samym mają zdolność wpływania na kształtowanie się globalnego wskaźnika samobójstw. Stosując metodę SPSM do trzech generacji testów pierwiastka jednostkowego, w opracowaniu zbadano własności integracyjne samobójstw w krajach G20 w latach 1990–2017. Wyniki uzyskane ze wszystkich trzech generacji testów dostarczają mocnych dowodów na utrzymywanie się samobójstw w większości państw członkowskich G20. Uzasadnia to istnienie aktualnego programu strategicznego forsowanego przez WHO, zmierzającego do redukcji odsetka samobójstw do docelowego poziomu 10 procent. Wskazano ponadto, że takie strategie powinny rozprzestrzeniać się z państw G20 na pozostałe państwa świata

Re-Examining the Impact of Public Education Expenditure on South African Literacy

Much empirical literature has focused on investigating the role of government expenditure in promoting long-term economic growth in South Africa. However, few studies in comparison have considered the impact of government spending on literacy level in the country. To this end, this paper examines the impact of government spending on literacy rate in South Africa using an Autoregressive Distributed Lag (ARDL) model with annual time series data over the period from 1994 to 2021. The key findings of this study are: (a) there is evidence of a long run relationship between government spending on education and the literacy rate in South Africa; (b) while the long run effect of government education spending on literacy is not significant, there is a statistically significant positive effect in the short run. These findings have several implications for policymakers and other stakeholders. Therefore, the study recommends that increased monitoring and evaluation mechanisms are desirable in the primary and secondary education sectors for accountability and reducing wastage of taxpayer funds. The Department of Education is also encouraged to re-consider current teacher training practices and fill long standing vacancies in the school sector that negatively impact education outcomes