Emerging African financial markets have been recently put forward as an interesting and profitable alternative to diversify risk for international investors. At the same time, they became more integrated with developed financial markets, so that, despite claims that Africa would be sheltered by outside shocks because at the margin of the globalization process, they have been hit by the 2008–09 crisis. This paper analyses the relationships among mature financial markets (US and UK), China, some South Saharan African emerging markets (Botswana, Kenya, Nigeria and South Africa) and two North African countries (Egypt and Tunisia) over the period 2005–2012, focusing on the role of financial markets’ volatility. We study, with the help of a Multiplicative Error fully inter-dependent model (MEM), the dynamics of the financial market volatility (risk), and the interactions with other markets. We present impulse-response functions with a time dependent profile to describe how a volatility shock from one market may propagate to other markets, increasing the fragility of African infant financial markets. Finally, we summarise the role of different markets in propagating risk in the area using a synthetic index (Volatility Spillover Balance) that distinguishes between volatility “creators” and “absorbers”. Our results show that South Africa and US shocks significantly affect African financial markets, and China has recently become more interconnected. Furthermore, while US, Kenya and Tunisia are “net creators” of volatility spillovers, South Africa and China turn out to be net “absorbers”.

A spillover analysis of shocks from US, UK and China on African financial markets / G. Giovannetti; M. Velucchi. - In: REVIEW OF DEVELOPMENT FINANCE. - ISSN 1879-9337. - STAMPA. - 3:(2013), pp. 169-179.

A spillover analysis of shocks from US, UK and China on African financial markets

GIOVANNETTI, GIORGIA;VELUCCHI, MARGHERITA
2013

Abstract

Emerging African financial markets have been recently put forward as an interesting and profitable alternative to diversify risk for international investors. At the same time, they became more integrated with developed financial markets, so that, despite claims that Africa would be sheltered by outside shocks because at the margin of the globalization process, they have been hit by the 2008–09 crisis. This paper analyses the relationships among mature financial markets (US and UK), China, some South Saharan African emerging markets (Botswana, Kenya, Nigeria and South Africa) and two North African countries (Egypt and Tunisia) over the period 2005–2012, focusing on the role of financial markets’ volatility. We study, with the help of a Multiplicative Error fully inter-dependent model (MEM), the dynamics of the financial market volatility (risk), and the interactions with other markets. We present impulse-response functions with a time dependent profile to describe how a volatility shock from one market may propagate to other markets, increasing the fragility of African infant financial markets. Finally, we summarise the role of different markets in propagating risk in the area using a synthetic index (Volatility Spillover Balance) that distinguishes between volatility “creators” and “absorbers”. Our results show that South Africa and US shocks significantly affect African financial markets, and China has recently become more interconnected. Furthermore, while US, Kenya and Tunisia are “net creators” of volatility spillovers, South Africa and China turn out to be net “absorbers”.
2013
3
169
179
G. Giovannetti; M. Velucchi
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Utilizza questo identificatore per citare o creare un link a questa risorsa: https://hdl.handle.net/2158/841894
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