COVID-19 Pandemic and Stock Market Linkages in Southern African Customs Union

Emenike, Kalu O. (2022): COVID-19 Pandemic and Stock Market Linkages in Southern African Customs Union.

Abstract

Stock market linkage broadens the range of investment opportunities available to market participants, strengthens the expansion of the component market, fosters healthy competition in the provision of financial services, and exacerbates vulnerability to volatility contagion. The objective of this study was to evaluate the linkages between stock markets in the Southern African Customs Union (SACU) before and during the COVID-19 pandemic using the bivariate Baba-Engle- Kraft-Kroner (BEKK) GARCH model and correlation analysis. Pre-COVID-19 results show that there is no correlation between the stock markets of Eswatini and any other SACU country; Botswana and Namibia stock markets exhibit a weak relationship, but South Africa and Namibia stock markets have a strong linkage. The COVID-19 results show evidence of a bidirectional volatility spillover between the SACU stock markets, suggesting increased linkage during the COVID-19 pandemic era. The COVID-19 pandemic has had a significant impact on the linkage of stock markets within the SACU region. For effective volatility transmission management, we recommend that policymakers and investors closely monitor and analyse the component markets during the crisis period. More so, the influence of the regional shocks should be considered in the formulation of investment and regulatory policies. This will help to ensure a more resilient and stable financial system in the face of future crises.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock market linkage, regional integration, COVID-19 pandemic, volatility spillover, South African Customs Union
• Subjects: F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy ; Regulation ; Public Health

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