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

Abstract

The influx of financial institutions into commodity markets, also known as the financialization of commodity markets, is a global phenomenon. This paper investigates the shock and spillover effects between commodity markets and some African equity markets using VAR-GARCH and DCC-GARCH approaches. The results show no equity return predictability in the African equity markets, supporting the main ideas of the efficient-market hypothesis (EMH). However, we find 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. Furthermore, we find 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). In sum, our findings show that the intensive financialization of commodity markets has had a clear role in the spreading of commodity market risks to African equity markets.