The Role of Information Asymmetries on Tail Risk: Evidence from Emerging Stock Markets

Abstract This paper contributes to the debate on geography as a driver of information diffusion and price discovery by examining the tail-dependence structure of nine African stock markets linked by free trade areas and economic unions. Using asymptotic-dependence measures derived from multivariate extreme value theory, we show that African equity markets exhibit stronger dependence during negative return exceedances than during positive return exceedances, indicating greater connectedness in crash states. The dependence structure is shaped by market-specific roles. Mauritius emerges as the dominant regional centre of negative tail dependence, displaying elevated crash dependence with all other markets, while South Africa, despite being the dominant trading partner and the most globally integrated market in the region, follows a distinct crash-risk profile. Cross-sectional regressions show that, conditional on these roles, bilateral trade contributes to negative tail-dependence propagation, while spatial distance indicates that crash dependence is organized through a wider geographic structure. Positive return exceedances display a more diffuse structure. Overall, the evidence supports a state-dependent, crash-specific information-diffusion mechanism in African equity markets.