Market Integration, Return and Volatility Dynamics: Empirical Evidence from African Stock Markets

Kashif Saleem,Sheraz Ahmed,Mikael Collan,Antwi Kofi Gyasi

doi:10.5539/ibr.v7n9p30

Kashif Saleem, Sheraz Ahmed + Show 2 more

Open Access

PDF Available

https://doi.org/10.5539/ibr.v7n9p30

Copy DOI

Export

Save

Cite

Abstract
Highlights/Summary
Full-Text PDF
Similar Papers

Abstract

Listen

This study examines the extent of integration of liberalized African equity markets with the US, the world, the BRIC countries, and other emerging markets. Specifically, we examine the relationship between seven African markets, namely those of Kenya, South Africa, Mauritius, Tunisia, Egypt, Zambia, and Morocco with the World market index and the US market index. In addition, the relationship between the African markets and the BRIC countries, and the Emerging Market Index is analyzed. We investigate, whether there are pure contagion effects in the markets under consideration during the (US) financial crisis of 2008. A bivariate VAR–GARCH–BEKK model is used in the analysis. Our empirical findings support the notion that these markets are still green for investment and provide portfolio benefits. Diversification benefits with African stock markets are dwindling over the years, but these benefits do not disappear entirely. Furthermore, the increased correlations between the African and the developed markets are still small, in comparison with correlations found between developed markets

Highlights

Many frontier and emerging economies have implemented policies with the objective of liberalizing their equity markets, this is true for many African markets - the focus area of this paper
African equity market liberalization has opened the African equity markets to foreign investors, and paved the way for African investors to invest in foreign equities. (Note 1) Among other things, equity market liberalization may result in diversification benefits and lead to a lower cost of equity capital as a result of a lowering rate of return required by an increased number of investors
The existence of integration between the South African, Egyptian, The under consideration during the (US), and The World markets has been extensively established in the literature, it is not surprising that the results of this study confirmed these findings

Summary

Introduction

Many frontier and emerging economies have implemented policies with the objective of liberalizing their equity markets, this is true for many African markets - the focus area of this paper. The objective of this study is to establish whether, and to what extent, the liberalized African stock-markets are integrated with the US markets and the World Markets Index (WMI). Foreign and local investors share any potential risks, and the presence of an increased number of investors can be expected to make liberalized equity markets more liquid. Equity market liberalization results in financial integration, which explains the co-movement of any two markets (see, e.g., Bekaert & Urias, 1996; Tai, 2007; Billio & Caporin, 2010; Bekaert & Harvey, 1995; Bekaert et al, 2002, 2003, 2005 & 2006 among others). In periods of crisis, increased volatility and co-movements between markets may result in, what is commonly called contagion effects (see, e.g., Forbes & Rigobon, 2002; Dungey et al, 2004; Saleem, 2009; Gebka & Serwa, 2007; Miyakoshi, 2003; Zhou et al, 2012; Beirne et al, 2010; Singh et al, 2010 among others)

Objectives

Results

Conclusion