Are African stock markets affected by global shocks in the very short term?

Abstract

We analyze the “abrupt” pure contagion on major African stock markets during the global financial crisis, the euro sovereign debt crisis, the 2014-2016 oil price crash, Brexit, the COVID-19 pandemic, and the ongoing war between Russia and Ukraine. For this purpose, we use wavelet correlations. The empirical results highlight the insensitivity of African stock markets to almost all global shocks in the very short run. In fact, we find only three contagious episodes during the crises under study. These episodes affected the Egyptian and South African markets during the global financial crisis. We conclude that “abrupt” pure contagion is a rare phenomenon in major African stock markets. This could be attributed to their weak integration with international markets, insignificant flow of information between the African stock markets and global markets, high transaction costs, and so on. Our findings are important for international investors as well as for African policymakers.