Information flow between global financial market stress and African equity markets: An EEMD-based transfer entropy analysis

Mohammed Armah; Ahmed Bossman; Godfred Amewu

doi:10.1016/j.heliyon.2023.e13899

Information flow between global financial market stress and African equity markets: An EEMD-based transfer entropy analysis

Heliyon. 2023 Feb 22;9(3):e13899. doi: 10.1016/j.heliyon.2023.e13899. eCollection 2023 Mar.

Authors

Mohammed Armah¹, Ahmed Bossman², Godfred Amewu³

Affiliations

¹ Department of Accounting and Finance, School of Business, Ghana Institute of Management and Public Administration (GIMPA), Achimota, Ghana.
² Department of Finance, School of Business, CC-191-7613, University of Cape Coast, Cape Coast, Ghana.
³ Department of Finance, School of Business, University of Ghana, Legon, Ghana.

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.

Keywords: African stock markets; COVID-19 pandemic; EEMD; Effective transfer entropy; Emerging markets; Ensemble empirical mode decomposition; Global financial market stress; Information flow.