African Stock Market Dynamics and Comovement

Abstract

With the economic relevance of the relationships among emerging and frontier equity markets becoming increasingly significant, this paper investigates co- movement among returns from six  African stock markets Botswana, South Africa, Egypt, Kenya, Mauritius, Morocco, Nigeria) and also with the U.S. S&P 500 Composite index. In part, we employ principal component analyses, to account for the maximum portion of the variance present in the returns by examining rolling windows with 8‐, 6‐, 4‐, 3‐, and 2 ‐year periods. We also investigate the incidence of structural breaks and co- movement, aiming to uncover the dynamics in co- movements among these markets. We find evidence of high co- movement among the African markets, and also with the U.S. markets. Botswana and South African's equity markets are at the extremes. However, our results do not corroborate findings of clear evidence, reported in previous studies, of the United States having a leading role in the region.

Keywords: co-movement, correlation, African stock markets, portfolio diversification, stock markets