The implication of cryptocurrency volatility on five largest African fnancial system stability

This study examined the interconnectedness and volatility correlation between crypto‑ currency and traditional fnancial markets in the fve largest African countries, address‑ ing concerns about potential spillover efects, especially the high volatility and lack of regulation in the cryptocurrency market. The study employed both diagonal BEKK GARCH and DCC-GARCH to analyze the existence of spillover efects and correlation between both markets. A daily time series dataset from January 1, 2017, to December 31, 2021, was employed to analyze the contagion efect. Our fndings reveal a signif‑ cant spillover efect from cryptocurrency to the African traditional fnancial market; however, the percentage spillover efect is still low but growing. Specifcally, evidence is insufcient to suggest a spillover efect from cryptocurrency to Egypt and Morocco's fnancial markets, at least in the short run. Evidence in South Africa, Nigeria, and Kenya indicates a moderate but growing spillover efect from cryptocurrency to the fnancial market. Similarly, we found no evidence of a spillover efect from the African fnancial market to the cryptocurrency market. The conditional correlation result from the DCC GARCH revealed a positive low to moderate correlation between cryptocurrency vola‑ tility and the African fnancial market. Specifcally, the DCC-GARCH revealed a greater integration in both markets, especially in the long run. The fndings have policy impli‑ cations for fnancial regulators concerning the dynamics of both markets and for inves‑ tors interested in portfolio diversifcation within the two markets.