COVID-19 pandemic and stock market linkages in Southern African Customs Union: a volatility spillover analysis

Despite the numerous implications, extant literature reveals a notable absence of the nature of stock market linkages in the Southern African Customs Union (SACU). This gap provides a motivation to investigate the linkages between SACU markets. Hence, this paper evaluates the linkages between four of the five stock markets in the SACU before and during the COVID-19 pandemic: Botswana, Eswatini, Namibia, and South Africa, using the bivariate Baba–Engle–Kraft–Kroner (BEKK) GARCH model and correlation analysis. The results from the pre-COVID-19 pandemic era suggest the absence of any linkage between small SACU stock markets (Botswana and Eswatini) and the South African stock market, except for the Namibian stock market. In addition, there is a weak relationship among the small markets. Conversely, the COVID-19 era results show evidence of a strong linkage among the SACU stock markets, suggesting the existence of increased linkage during the COVID-19 pandemic era. These findings not only close an important literature gap but are also important for market risk diversification and financial market stability within the Union. They are equally useful to investors in their search to understand the dynamic linkages between stock markets in the SACU during crisis periods.