Modelling stock returns in Africa's emerging equity markets

Abstract

We investigate the behaviour of stock returns in Africa's largest markets namely, Egypt, Kenya, Morocco, Nigeria, South Africa, Tunisia and Zimbabwe.The validity of the random walk hypothesis is examined and rejected by employing a battery of tests. Secondly we employ smooth transition and conditional volatility models to uncover the dynamics of the first two moments and examine weak from efficiency. The empirical stylized facts of volatility clustering, leptokurtosis and leverage effect are present in the African data.

Asymmetric Effects in Emerging Stock Markets - The Case of Iran Stock Market

“…France, Germany, US and Japan, Cheng et al (2010) for Bahrain, Kuwait, Oman, Saudi Arabia, Egypt, Jordan and Turkey, Krishnan and Mukherjee (2010) for India, Sabiruzzaman et al (2010) for Hong Kong and Tan and Islam Khan (2010) for Malaysia stock markets find out the existence of leverage effects in volatility modelling. On the other hand, this finding is not unique to our study as many other studies have reached similar conclusions (Rousan and Al-khouri (2005) for Amman, Brooks (2007) for Chilli, Saudi Arabia and Bahrain, Mun et al (2008) for Malaysia, Bahadur (2008) for Nepal, Alagidede and Panagiotidis (2009) for Tunisia and Zimbabwe, Jayasuriya et al (2009) for Brazil, Chile, Indonesia, Pakistan and Taiwan, Saeidi and Koohsarian (2010) for The Iranian stock market, Cheng et al (2010) for Morocco, Charles (2010) for the UK stock markets). On the whole it can be noted that the asymmetric volatility (negative relationship between stock returns movements and future volatility) is not applicable to Iran market as an emerging stock market.…”

“…Even though the asymmetric volatility phenomenon is well documented in developed and emerging stock markets, there is some evidence indicating lack of asymmetric behaviour particularly in emerging stock markets (Rousan and Al-khouri (2005), Brooks (2007), Mun et al (2008), Bahadur (2008), Alagidede andPanagiotidis (2009), Jayasuriya et al (2009) and Cheng et al (2010)). Mehrara and Abdoli (2006) using the time-varying volatility model and employing the daily Iranian stock market index over the period of March 30 1999 to May 5 2003 shows that responses of stock returns to good and bad news are symmetric.…”

Asset Allocation Brewed Accross African Stock Markets

“…In computing the stock returns, the monthly stock price indices of each country are used. The asset allocation and portfolio optimization literature indicates that in order to take advantage of diversification in portfolio optimization and asset allocation, low and negative correlations need to exist between stock returns of markets or securities (Mensah et al, 2013;Alagidede and Panagiotidis, 2009). This study also performs hypothesis testing to determine if these correlations are significantly different from zero.…”

Size and Liquidity Effects in Nigeria: An Industrial Sector Study

“…These issues compounded with order flow to the exchange being highly concentrated amongst a mere handful of brokerage firms of those 219 registered (Hearn and Piesse, 2012), as well as up to 70% of the brokerage industry being severely undercapitalized and technically insolvent (BBC news, 2010), has led to the Nigerian market being largely segmented from other exchanges both regionally and worldwide (Hearn and Piesse, 2012). It is also a key issue underscoring recent evidence of a lack of informational efficiency in stock prices both in Nigeria as well as more generally across Africa (Alagidede and Panagiotidis, 2009). …”