The implication of cryptocurrency volatility on five largest African financial system stability
Abstract This study examined the interconnectedness and volatility correlation between cryptocurrency and traditional financial markets in the five largest African countries, addressing concerns about potential spillover effects, especially the high volatility and lack of regulation in the cryptocur...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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SpringerOpen
2024-01-01
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| Series: | Financial Innovation |
| Subjects: | |
| Online Access: | https://doi.org/10.1186/s40854-023-00580-5 |
| _version_ | 1797276331719786496 |
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| author | Tonuchi E. Joseph Atif Jahanger Joshua Chukwuma Onwe Daniel Balsalobre-Lorente |
| author_facet | Tonuchi E. Joseph Atif Jahanger Joshua Chukwuma Onwe Daniel Balsalobre-Lorente |
| author_sort | Tonuchi E. Joseph |
| collection | DOAJ |
| description | Abstract This study examined the interconnectedness and volatility correlation between cryptocurrency and traditional financial markets in the five largest African countries, addressing concerns about potential spillover effects, especially the high volatility and lack of regulation in the cryptocurrency market. The study employed both diagonal BEKK-GARCH and DCC-GARCH to analyze the existence of spillover effects and correlation between both markets. A daily time series dataset from January 1, 2017, to December 31, 2021, was employed to analyze the contagion effect. Our findings reveal a significant spillover effect from cryptocurrency to the African traditional financial market; however, the percentage spillover effect is still low but growing. Specifically, evidence is insufficient to suggest a spillover effect from cryptocurrency to Egypt and Morocco’s financial markets, at least in the short run. Evidence in South Africa, Nigeria, and Kenya indicates a moderate but growing spillover effect from cryptocurrency to the financial market. Similarly, we found no evidence of a spillover effect from the African financial market to the cryptocurrency market. The conditional correlation result from the DCC-GARCH revealed a positive low to moderate correlation between cryptocurrency volatility and the African financial market. Specifically, the DCC-GARCH revealed a greater integration in both markets, especially in the long run. The findings have policy implications for financial regulators concerning the dynamics of both markets and for investors interested in portfolio diversification within the two markets. |
| first_indexed | 2024-03-07T15:26:44Z |
| format | Article |
| id | doaj.art-696cf5bef8d7438aae68fd10140077a7 |
| institution | Directory Open Access Journal |
| issn | 2199-4730 |
| language | English |
| last_indexed | 2024-03-07T15:26:44Z |
| publishDate | 2024-01-01 |
| publisher | SpringerOpen |
| record_format | Article |
| series | Financial Innovation |
| spelling | doaj.art-696cf5bef8d7438aae68fd10140077a72024-03-05T16:39:05ZengSpringerOpenFinancial Innovation2199-47302024-01-0110111910.1186/s40854-023-00580-5The implication of cryptocurrency volatility on five largest African financial system stabilityTonuchi E. Joseph0Atif Jahanger1Joshua Chukwuma Onwe2Daniel Balsalobre-Lorente3Department of Statistics, Central Bank of NigeriaInternational Business School, Hainan UniversitySchool of General studies, Federal Polytechnic OhodoDepartment of Applied Economics I, University of Castilla La ManchaAbstract This study examined the interconnectedness and volatility correlation between cryptocurrency and traditional financial markets in the five largest African countries, addressing concerns about potential spillover effects, especially the high volatility and lack of regulation in the cryptocurrency market. The study employed both diagonal BEKK-GARCH and DCC-GARCH to analyze the existence of spillover effects and correlation between both markets. A daily time series dataset from January 1, 2017, to December 31, 2021, was employed to analyze the contagion effect. Our findings reveal a significant spillover effect from cryptocurrency to the African traditional financial market; however, the percentage spillover effect is still low but growing. Specifically, evidence is insufficient to suggest a spillover effect from cryptocurrency to Egypt and Morocco’s financial markets, at least in the short run. Evidence in South Africa, Nigeria, and Kenya indicates a moderate but growing spillover effect from cryptocurrency to the financial market. Similarly, we found no evidence of a spillover effect from the African financial market to the cryptocurrency market. The conditional correlation result from the DCC-GARCH revealed a positive low to moderate correlation between cryptocurrency volatility and the African financial market. Specifically, the DCC-GARCH revealed a greater integration in both markets, especially in the long run. The findings have policy implications for financial regulators concerning the dynamics of both markets and for investors interested in portfolio diversification within the two markets.https://doi.org/10.1186/s40854-023-00580-5African financial marketBEKK-GARCHCryptocurrencyDCC-GARCHVolatility spillover |
| spellingShingle | Tonuchi E. Joseph Atif Jahanger Joshua Chukwuma Onwe Daniel Balsalobre-Lorente The implication of cryptocurrency volatility on five largest African financial system stability Financial Innovation African financial market BEKK-GARCH Cryptocurrency DCC-GARCH Volatility spillover |
| title | The implication of cryptocurrency volatility on five largest African financial system stability |
| title_full | The implication of cryptocurrency volatility on five largest African financial system stability |
| title_fullStr | The implication of cryptocurrency volatility on five largest African financial system stability |
| title_full_unstemmed | The implication of cryptocurrency volatility on five largest African financial system stability |
| title_short | The implication of cryptocurrency volatility on five largest African financial system stability |
| title_sort | implication of cryptocurrency volatility on five largest african financial system stability |
| topic | African financial market BEKK-GARCH Cryptocurrency DCC-GARCH Volatility spillover |
| url | https://doi.org/10.1186/s40854-023-00580-5 |
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