COVID‐19 crisis and risk spillovers to developing economies: Evidence from Africa

Abstract

This study provides new evidence on how risk spillovers occur from the United States to developing economies in Africa during the COVID‐19 pandemic. The results show that downside risk exposures of African markets, financial firms and banks particularly increased during Phase I (30 January to 30 April 2020). The nature and magnitude of downside risk exposures of African financial markets were similar to those of the United States. Our results also reveal that the United States is a net transmitter of risk spillovers while Nigeria, South Africa, Egypt and Morocco are net recipients. Our conclusions offer guidance to risk managers, policymakers and investors.

A description of the COVID-19 outbreak role in financial risk forecasting

“…Our empirical findings relate closely to Abuzayed et al (2021) , Lai and Hu (2021) , Akhtaruzzaman, Benkraiem, et al, 2022 , Akhtaruzzaman, Boubaker, et al, 2022 and Zhang et al (2020) . However, different from ours, much of this literature is focused on studying contagion among countries ( Akhtaruzzaman, Benkraiem, et al, 2022 ), cryptocurrencies ( Akhtaruzzaman, Boubaker, et al, 2022 ), or financial institutions ( Akhtaruzzaman, Boubaker, and Sensoy, 2021 , Baumöhl et al, 2020 , Borri and Di Giorgio, 2021 , Rizwan et al, 2020 ). For instance, Abuzayed et al (2021) studied the tail-risk spillovers from the financial system and each of the fourteen countries most exposed to COVID-19.…”

Industries' heterogeneous reactions during the COVID‐19 outbreak: Evidence from Chinese stock markets

“…Being a unique global public health crisis, the COVID‐19 pandemic's impact on financial markets has received unprecedented attention from researchers. Several studies have examined its effects from different perspectives, such as stock returns (Baker et al, 2020 ; L. Chen, Min, et al, 2022 ; Xu, 2021 ), financial volatility (risk) (Akhtaruzzaman et al, 2022 ; Wen et al, 2021 ; Zhao & Wen, 2022 ), crash risk (Dai et al, 2021 ; Z. Liu et al, 2021 ), financial contagion (Akhtaruzzaman et al, 2020 ; Zhao et al, 2021 ), asset allocation (Akhtaruzzaman, Boubaker, Lucey, et al, 2021 ; Ji et al, 2020 ; Wen, Tong, et al, 2022 ), corporate activities (Akhtaruzzaman et al, 2021 ; Boubaker et al, 2022 ), credit spread (Cicchiello et al, 2022 ), and oil prices (Akhtaruzzaman, Boubaker, Chiah, et al, 2021 ).…”

Does safe haven exist? Tail risks of commodity markets during COVID-19 pandemic

“…The spectral risk measures are known as coherent measures that are a weighted average of the quantiles of the portfolio returns with a non-increasing weight function ( Artzner et al, 1997 , 1999 ), which delivers more precise estimates than the standard VaR risk measure ( Cotter and Dowd, 2006 ). As such, spectral risk measures have gained popularity in estimating downside risk during the COVID-19 pandemic (see, for example, Akhtaruzzaman et al, 2022 ). Our study follows Cotter and Dowd (2006) in defining a spectral risk measure as: where is weighting function that reflects the user's risk aversion, for which, for ; ; for all ; is the loss quantile, where .…”

“…9 is determined from the following exponential utility risk-aversion function: where is the user's coefficient of absolute risk-aversion. We follow both well-established and recent studies of Cotter and Dowd (2006) and Akhtaruzzaman et al (2022) and choose varying coefficients of absolute risk aversion, . This further reassures that our results are not sensitive to the choice of the coefficient of absolute risk-aversion, .…”