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An empirical analysis of stock market interdependence and volatility spillover in the stock markets of Africa and Middle East region

Ajaya Kumar Panda (Department of Accounting and Finance, National Institute of Industrial Engineering, Mumbai, India)
Swagatika Nanda (Department of Economics, Vidyalankar School of Information Technology, Mumbai, India)
Rashmi Ranjan Paital (Department of Economics, Faculty of Management, IBS Hyderabad, Hyderabad, India)

African Journal of Economic and Management Studies

ISSN: 2040-0705

Article publication date: 10 May 2019

Issue publication date: 19 August 2019




The purpose of this paper is to examine the short-term and long-term interdependence among the stock markets of Africa and Middle East region. It also attempts to analyze the pattern of volatility spillover among the regional stock markets.


The study has used Granger causality test, variance decomposition test of vector auto-regression (VAR) model, vector error correction model (VECM), multivariate generalized conditional heteroskedasticity (MGARCH-BEKK) models and Johansen and Juselius multivariate cointegration techniques.


The study finds that the interlinkages of the stock markets are not uniform across all the countries of the region. The stock market of Israel, South Africa and Jordan are found to be highly connected stock market of the region followed by Egypt and Botswana. The study also finds significant spillover of lagged standardized volatility across the stock markets of the region. But the magnitude of the response of volatility spillover and its persistence is very minimum. However, the stock markets are found to be co-integrated and expected to share long-run equilibrium relationships among each other.

Research limitations/implications

The study has the scope to be extended to capture the time-varying integration of market returns with transmission of monetary policy and exchange rate changes within the region. The results obtained from this study may assist the firm managers and international investors to understand the key drivers of market connectedness.


Empirically investigating the pattern of stock market connectedness in Africa and Middle East region with advanced methodology over a long study period is the originality of this study.



Panda, A.K., Nanda, S. and Paital, R.R. (2019), "An empirical analysis of stock market interdependence and volatility spillover in the stock markets of Africa and Middle East region", African Journal of Economic and Management Studies, Vol. 10 No. 3, pp. 314-335.



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