Systemic Risks Spillovers and Interdependence among Stock Markets: International Evidence with Covar-Copulas

Systemic Risks Spillovers and Interdependence among Stock Markets: International Evidence with Covar-Copulas

Author: 
Boako, Gideon
Publisher: 
Wiley
Date published: 
2018
Record type: 
Responsibility: 
Alagidede, Paul, jt. author
Journal Title: 
South African Journal of Economics
Source: 
South African Journal of Economics, Vol. 86, N0. 1, 2018 pp. 82-112
Abstract: 

Empirical studies have provided ample evidence on the potential benefits of international diversification with portfolios that consist of both domestic and foreign assets. This coupled with sudden and periodic crashes in global and developed equity markets have stimulated the interest of investors to diversify across markets that have the potential to provide decorrelation with global markets during turbulent periods. At the same time, international diversification may intensify cross-border listing of stocks with its antecedent implication of shocks transmission. The above have engendered renewed interest among researchers to explore the dependence levels and spillover effects of shocks among emerging and developed equity markets. This paper examines tail dependence structure and (extreme) systemic risks spillover effects among international equity markets using advanced econometric techniques that underpin the modelling of asset returns. We find evidence of low positive significant dependencies between all African markets and their developed counterparts, except for Egypt. Although no evidence of spillover effects to the markets in Africa was found, both unidirectional and bi-directional causality between some African and developed equity markets is found, albeit with differences. We are unable to ascribe the dynamics in the causality structure to level of market integration. It is inferred that the degree of individual local markets interdependence with developed counterparts may reflect the relative size, liquidity and degree of foreign investors' participation.

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Date created: 
Friday, March 8, 2019