Armah M, Bossman A, Amewu G. Information flow between global financial market stress and African equity markets: An EEMD-based transfer entropy analysis.
Heliyon 2023;
9:e13899. [PMID:
36895379 PMCID:
PMC9988586 DOI:
10.1016/j.heliyon.2023.e13899]
[Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [What about the content of this article? (0)] [Affiliation(s)] [Abstract] [Key Words] [Track Full Text] [Journal Information] [Subscribe] [Scholar Register] [Received: 10/18/2022] [Revised: 02/07/2023] [Accepted: 02/15/2023] [Indexed: 02/24/2023] Open
Abstract
The flow of information between markets is important to guide investors and policymakers in the effective allocation of assets and proactive market regulation, respectively. This study examines the impact of information flow from global financial market stress on the African stock markets using the daily US financial stress index (USFSI) and other advanced economies' financial stress index (OAEFSI) to proxy the global financial stress index. To understand the information flow dynamics across various investment horizons, the ensemble empirical mode decomposition (EEMD)-based transfer entropy is employed. Our findings reveal that African equity markets are highly risky for information flow from global financial market stress. However, we identify diversification prospects based on market conditions for Ghana and Egypt in the short term and Tanzania, Cote D'Ivoire, and Egypt in the medium term. Empirical results also show that the information flow from global financial stress to African stock markets depends on time scales, economic relations, and the state of global financial markets. The findings are important for investors, portfolio managers, practitioners, and policymakers.
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