Risk spillover effects between financial markets
Download This Article
David Umoru 
, Innah Dickson Edadi , Amos William Obeten, Naomi Isang Eni , Augustine Augustine Ele, Daniel Bisong Bisong , Dorn Cklaimz Enamhe , Mabel Ekanem Essien, Gabriel Tanjo Abumbe , Chikulirim Eke Ihuoma , Ofem Lekam Ujong, Undie Moses Agba , Felix Awara Eke , Fazuyat Faruk, Beauty Igbinovia , Muhammed Adamu Obomeghie , Malachy Ashywel Ugbaka , Takim Tiku Oru, Etim Victor Ndum
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
Due to capital flow liberalization, financial instruments react swiftly to market information. Utilizing the structural vector autoregression (SVAR) approach, this study analyzes risk spillover effects between financial markets in South Africa and Nigeria. Findings indicate significant risk spillovers between stock and exchange rate markets in both countries. In Nigeria, extraordinarily high exchange rate volatility acts as a major destabilizing variable, contributing significantly to stock market instability and showing high sensitivity to the United States interest rate spread. Conversely, South African stock returns exhibit high shock volatility, but remarkably stable interest rates indicate effective central bank regulation for shock absorption, though exchange rates react strongly to stock return shifts. Crucially, South African markets mean-revert within a week, whereas Nigerian markets exhibit long-memory responses, creating disequilibrium for up to a month with delayed stock return impacts from currency swings. Ultimately, this structural market heterogeneity underscores the critical need for enhanced risk management practices and international financial cooperation.
Keywords: Financial Spillover, SVAR, Exchange Rate Volatility, Stock Returns, Interest Rates, Risk Transmission
Authors’ individual contribution: Conceptualization—D.U., T.T.O., B.I., and E.V.N.; Methodology—M.A.O., F.A.E., G.T.A., and B.D.B.; Software—F.F., O.L.U., M.E.E., and A.A.E.; Validation—U.M.A., C.E.I., N.I.E., and A.W.O.; Formal Analysis—D.U., T.T.O., M.A.U., and I.D.E.; Investigation—B.I., F.A.E., G.T.A., and D.C.E.; Data Curation—M.A.O., F.F., O.L.U., B.D.B., and I.D.E.; Writing—Original Draft—D.U., T.T.O., M.A.O., B.I., and F.F.; Writing—Review & Editing—M.A.U., U.M.A., C.E.I., M.E.E., D.C.E., A.A.E., N.I.E., A.W.O., and E.V.N.; Supervision—D.U.
Declaration of conflicting interests: The Authors declare that there is no conflict of interest.
JEL Classification: A24, C35, D37
Received: 09.07.2025
Revised: 08.11.2025; 31.03.2026
Accepted: 24.04.2026
Published online: 28.04.2026
How to cite this paper: Umoru, D., Oru, T. T., Ugbaka, M. A., Obomeghie, M. A., Igbinovia, B., Faruk, F., Eke, F. A., Agba, U. M., Ujong, O. L., Ihuoma, C. E., Abumbe, G. T., Essien, M. E., Enamhe, D. C., Bisong, B. D., Ele, A. A., Eni, N. I., Obeten, A. W., Edadi, I. D., & Ndum, E. V. (2026). Risk spillover effects between financial markets. Risk Governance and Control: Financial Markets & Institutions, 16(2), 16–34. https://doi.org/10.22495/rgcv16i2p2
