Cross-market connectedness of returns and volatility in South African and BRICS+ financial markets

This study investigates the interconnectedness of South African financial markets and their linkages with BRICS+ economies, focusing on the dynamic transmission of overnight returns, intraday returns, and volatility. Employing the Time-Varying Parameter Vector Autoregression (TVP-VAR) model within the Diebold-Yilmaz framework, we examine spillover effects across major Johannesburg Stock Exchange (JSE) indices and selected BRICS+ markets. The results reveal a consistently high level of connectedness across all three dimensions, with total connectedness indices (TCI) of 64.99% for overnight returns, 63.45% for intraday returns, and 63.05% for volatility. The JSE All Share Index (J203) emerges as the dominant net transmitter of spillovers, while the Resources Index (J258) acts as the primary net receiver. These findings indicate that shocks, whether return or volatility based, are rapidly transmitted across South African sectors, leaving limited room for domestic diversification. By contrast, BRICS+ markets exhibit significantly lower levels of interconnectedness, with TCIs typically ranging between 20 and 40% outside of global crises. Episodes, such as the COVID-19 pandemic and the Russia-Ukraine conflict temporarily intensified connectedness, but these effects were short-lived. From a South African perspective, J203 plays only a modest role within the BRICS+ network, acting mainly as a net transmitter of returns but alternating between receiver and transmitter in volatility spillovers.The results highlight limited domestic diversification and the potential for cross-border risk reduction during stable periods, offering valuable insights for investors and policymakers managing systemic risk and portfolio resilience.