Correlation of stock market returns in the West African region from 2008 to 2016

Abstract

Stock markets over the world have become more interconnected due to activities of foreign investors in search for alternative financial assets and markets to invest in order to diversify their portfolio. Stock market indices and index returns have been known to reflect linkages between different markets. This study assesses the extent of correlation of stock market index returns in West Africa and those of the United States of America (US) and United Kingdom (UK) from 2008 to 2016. The correlation between the index returns for the entire sample period and yearly samples were considered for Nigeria, Ghana, the BRVM, the USA and the UK. The indices selected for the five countries considered are the Nigerian All-Share Index, Ghanaian Composite Index, the BRVM Composite Index, the Financial Times 100 Index and the Standards and Poor’s 500 Index. Daily index returns data were used for the study and analyzed using correlation and multiple regression analysis. Findings revealed that the returns of the pairs of the United States of America (US) and the United Kingdom (UK) exhibited stronger positive correlation with each other than the other market pairs in the study both in the entire sample period and the yearly sub-period analysis. The correlations between the other market pairs were either positively or negatively weak or very weak indicating more diversification opportunities.

Stock market volatility: a systematic review

“…Third, the global stock market interlinkages are examined. Global stock indices in frontier and emerging nations are becoming more interconnected due to globalization, financial liberalization and technology improvements (Obadiaru et al , 2019). King and Wadhwani (1990) argued that despite the disparate economic circumstances in these two markets, investors in a specific stock market take information from price fluctuations in another stock market, resulting in a contagion effect.…”

Dynamic links between the Nigerian equity market and those of selected regional and developed countries

“…Obadiaru et al. (2018) studied volatility spillovers amongst West African equity markets and with major global exchanges, while Obadiaru et al. (2019) investigated the correlation of stock market returns, examining yearly samples from 2008 to 2016.…”

“…Alagidede (2008), amongst others, studied the relationship between stock markets in Africa viz-a-viz markets in other climes. Obadiaru et al (2018) studied volatility spillovers amongst West African equity markets and with major global exchanges, while Obadiaru et al (2019) investigated the correlation of stock market returns, examining yearly samples from 2008 to 2016. Alagidede (2008) studied the integration of selected African markets within themselves and included the markets of South Africa, Egypt, Nigeria and Kenya, and further examined the integration with other markets outside the African continent including India, Brazil, Mexico, US, UK and Japan from 1997 to 2006.…”