This paper identi®es four categories of formal stock market in Africa: South Africa, medium-sized markets, small new markets which have experienced rapid growth, and small new markets which have yet to take o . The hypothesis that a stock market price index follows a random walk is tested for South Africa, ®ve medium-sized markets (Egypt, Kenya, Morocco, Nigeria and Zimbabwe) and two small new markets (Botswana and Mauritius) using the multiple variance ratio test of Chow and Denning (Journal of Econometrics, 58, 385±401, 1993). The hypothesis is rejected in seven of the markets because of autocorrelation of returns. For the South African market, the stock price index follows a random walk. The paper also suggests factors which may contribute to whether or not an equity market follows a random walk.

This paper classifies formal African stock markets into four categories and discuses the principal characteristics of the seven markets covered in this study: South Africa, Egypt, Morocco, Nigeria, Zimbabwe, Mauritius and Kenya. Using a GARCH approach with time-varying parameters, a test of evolving efficiency (TEE) is implemented for periods starting in the early 1990s and ending in June 2001. This test detects changes in weak form efficiency through time. The TEE finds that the Johannesburg stock market is weak form efficient throughout the period, and three stock markets become weak form efficient towards the end of the period: Egypt and Morocco from 1999 and Nigeria from early 2001. These contrast with the Kenya and Zimbabwe stock markets which show no tendency towards weak form efficiency and the Mauritius market which displays a slow tendency to eliminate inefficiency. The paper relates weak form efficiency to stock market turnover, capitalisation and institutional characteristics of markets. Copyright 2005 Economic Society of South Africa.

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