Investigating temporal variation in the global and regional integration of African stock markets

Abstract

Financial market integration has significant implications for risk sharing and diversification, cost of capital estimation, market efficiency, financial decisions, and macro-economic policy. By relying on a multifactor asset pricing framework, this paper examines the integration of 11 African Stock Markets (ASMs) relative to the world and emerging markets, as well as the impact of the Global Financial Crisis (GFC) on their degree integration. We provide evidence that world, emerging market and African market factors command a significant risk premium in African markets, and that the markets are partially integrated with the world market. The level of integration of the African markets has changed through time, and the GFC impacted their degree of integration with the world market.