Do Africa stock markets exhibit any evidence of risk-return trade-off

Abstract

The purpose of this paper is to establish the nature of risk-return trade-off in selected Africa stock markets. Specifically, the paper evaluates stock markets in Cote d'Ivoire (BRVM), Kenya, Mauritius, Morocco, Nigeria, South Africa and Tunisia, for risk-return relationship. The paper employs AR(p)-GARCH(1, 1)-in-mean model on the seven stock markets over the 4 January 2010 to 30 November 2018 study period. The results evince positive and significant risk-return trade-off in the South Africa, Tunisia and Morocco stock markets. The results also show existence of positive but insignificant risk premium coefficients for the other Africa stock markets, which imply that stock markets in Cote d'Ivoire, Kenya, Mauritius, and Nigeria may not have compensated investors for inherent systematic risk. The results further suggest that investments in many of the Africa stock markets over the sample period would have provided returns uncorrelated with risk.