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Dynamic connectedness, hedge and safe-haven effects: cryptocurrencies, precious metals and African stock markets

David Korsah (Department of Finance, University of Ghana College of Humanities, Accra, Ghana)
Lord Mensah (College of Business, Prince Mohammad Bin Fahd University (PMU), Al Khobar, Saudi Arabia)
Kofi Achampong Osei (Department of Finance, University of Ghana Business School, Accra, Ghana)
Godfred Amewu (Department of Finance, University of Ghana College of Humanities, Accra, Ghana)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 1 January 2025

85

Abstract

Purpose

This study seeks to: (1) examine the extent of interconnectedness prevailing between the cryptocurrency market, the stock market and the precious metals market. (2) Conduct thorough assessment of hedge and safe-haven qualities of broad range of precious metals and cryptocurrencies against returns on the African stock market.

Design/methodology/approach

This study applied two novel approaches that is Cross-quantilogram, an advanced statistical technique used to examine the relationship between quantiles of response variable and the quantiles of predictor variables, and TVP-VAR, a technique that captures the dynamic connectedness of variables under consideration.

Findings

It was found that the three markets are highly interconnected, particularly among assets under the respective financial markets. It was further revealed that the Johannesburg Stock Exchange (JSE) was the most resilient stock market, whereas Bitcoin, BNB, Silver (XAG) and Platinum (XPT) also exhibited notable resistance to shocks. Finally, the study found that cryptocurrencies and precious metals portrayed varying hedge and safe haven qualities under the various stock markets.

Practical implications

The high interdependency between the African stock market, cryptocurrencies and precious metals suggests that none of the markets is immune to shocks form the other market. The finding that cryptocurrencies and precious metals exhibit some degree of safe-haven and hedge potentials, albeit limited in certain stock markets, provides investors with alternative investment options during market downturns. Since most African stock markets, except the JSE, are net receivers of shocks, investors in these markets should exercise caution during periods of global financial uncertainty.

Originality/value

To the best of our knowledge, this study is the first to explore the dynamic interconnectedness between seven carefully selected African stock markets, three distinct cryptocurrencies and four precious metals, while also assessing the hedge and safe-haven potential of the cryptocurrencies and precious metals against stock market returns. Additionally, the study stands out in recent literature by employing two novel approaches: the TVP-VAR model, which captures the dynamic connectedness among variables, and the Cross-Quantilogram, an advanced statistical method that analyzes the relationship between the quantiles of the response and predictor variables, all within a single study.

Keywords

Citation

Korsah, D., Mensah, L., Osei, K.A. and Amewu, G. (2025), "Dynamic connectedness, hedge and safe-haven effects: cryptocurrencies, precious metals and African stock markets", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-06-2024-1090

Publisher

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Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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