African stock markets’ connectedness: Quantile VAR approach

OlaOluwa Yaya (1) Olayinka Adenikinju (2) Hammed A. Olayinka (3)
(1) Economic and Financial Statistics Unit, Department of Statistics, University of Ibadan, Ibadan, Nigeria & Centre for Econometrics and Applied Research, Ibadan, Nigeria
(2) Department of Economics, Bowen University, Iwo, Nigeria
(3) Department of Mathematical Sciences, Worcester Polytechnic Institute, Worcester, United States

Abstract

The present paper investigates African stock markets’ linkages by considering stocks in the continent’s largest economies, specifically Egypt, Kenya, Morocco, Nigeria, South Africa, and Tunisia. Using a dataset that spanned November 25, 2008, to September 18, 2023, the quantile connectedness approach of Chatziantoniou et al. (2021) is employed, and the results unfold these interesting dynamics of African market connectivity: (i) In the bearish market phase, South African stock dominated the entire network, transmitting shocks to the remaining stocks, while Moroccan and Kenyan stocks played similar role mildly. (ii) In the bullish market phase, Nigerian stock dominated the market as a major net transmitter of shock supported by South African and Kenyan stock markets. (iii), The Egyptian and Tunis stock markets are net shock receivers in both the bear and bull market phases. (iv), At the median quantile value, stocks become less riskier and the Kenyan stock market becomes the most vulnerable while Nigerian, Egyptian, and South African stock markets are influenced by other stock markets when markets are calm. (v), Though, African stocks are underperforming, interested portfolio managers will learn from the trading strategies to be adopted to maximize their returns. These findings will benefit portfolio managers, international stakeholders, and regulators.

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Authors

OlaOluwa Yaya
os.yaya@ui.edu.ng (Primary Contact)
Olayinka Adenikinju
Hammed A. Olayinka
Author Biographies

OlaOluwa Yaya, Economic and Financial Statistics Unit, Department of Statistics, University of Ibadan, Ibadan, Nigeria & Centre for Econometrics and Applied Research, Ibadan

Economic and Financial Statistics Unit, Department of Statistics, University of Ibadan, Ibadan, Nigeria & Centre for Econometrics and Applied Research, Ibadan, Nigeria; os.yaya@ui.edu.ng

Olayinka Adenikinju, Department of Economics, Bowen University, Iwo

Department of Economics, Bowen University, Iwo, Nigeria; olayinka.adenikinju@bowen.edu.ng

Hammed A. Olayinka, Department of Mathematical Sciences, Worcester Polytechnic Institute, Worcester

Department of Mathematical Sciences, Worcester Polytechnic Institute, Worcester, USA; haolayinka@wpi.edu

Yaya, O., Adenikinju, O., & Olayinka, H. A. (2024). African stock markets’ connectedness: Quantile VAR approach. Modern Finance, 2(1), 51–68. https://doi.org/10.61351/mf.v2i1.70

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