Shock and Spillover Effects of Global Commodity Markets on Some African Equity Markets

Abstract

A decade after the 2008–2009 global recession, the world’s financial architecture has developed into an integrated network of financial and commodity markets, mainly due to cross-border investments and trade. In light of this, shock spillovers have also intensified as the interdependence between equity and commodity markets increased after the global financial crisis (GFC). This paper investigates the dynamic shock and spillover effects of international commodity markets on some African equity markets using VAR-GARCH and DCC-GARCH approaches. The first moment equation show no equity return predictability in the African equity markets, which support the main ideas of the efficient-market hypothesis (EMH). But the second moment equations reveal a statistically significant risk and shock spillovers from the international commodity markets on African equity markets as well as spillover effects from the global implied volatility indicators. In addition, we find a is strong indication that the risk effects are time-varying and that they become stronger when the market risks increase, particularly during and after the global financial crisis (GFC). Overall, the findings reveal that the intensive financialization of commodity markets has had a clear role in the spreading of commodity market risks to African equity markets.