Return and volatility spillovers between South African and Nigerian equity markets

Lumengo Bonga-Bonga, Maphelane Palesa Phume

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


Purpose: The paper evaluates the cross-transmission of returns and volatility shocks between Nigeria and South Africa stock markets to infer the extent of interdependence between the two markets. The paper also makes inference to optimal portfolio weights of holding assets in the two markets. Design/methodology/approach: The paper uses an asymmetric vector autoregressive-exogenous generalised autoregressive conditional heteroscedasticity (VAR-X GARCH) model to assess the extent of returns and volatility spillovers between Nigeria and South Africa. Findings: The results of the empirical analysis show evidence of shock spillovers from the South African stock market to the Nigerian stock market. Moreover, based on the dynamic Sharpe ratio and portfolio weight optimisation, the results indicate the possibility of portfolio diversification when holding simultaneous positions in the two stock markets. Practical implications: The results imply the possibility of economic profit for investors who take positions in the two stock markets. The lack of synchronisation of stock markets in the two largest economies in Africa is in contrast with the situations in other regions where stock markets returns of large economies often co-move. Originality/value: The paper is the first to use the asymmetric VAR-X GARCH model to assess the cross-transmission of shocks between stock markets.

Original languageEnglish
Pages (from-to)205-218
Number of pages14
JournalAfrican Journal of Economic and Management Studies
Issue number2
Publication statusPublished - 24 May 2022
Externally publishedYes


  • Optimal portfolio weights
  • Sharpe ratio
  • Shock spillovers

ASJC Scopus subject areas

  • General Business,Management and Accounting
  • Economics, Econometrics and Finance (all)


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