Leverage Effect and Market Efficiency in selected African Stock Markets

Abstract

This study aimed at estimating African stock markets’ efficiency, using Augmented Dickey Fuller as well as investigating their leverage effects, applying the EGARCH model. Monthly All Share Indices of five selected African stock markets from 1st January, 2018 to 31st December, 2022 form the data deployed. Findings showed that all but the Casablanca Stock Exchange manifested leverage effect while all the countries’ markets were weak form efficient. However, an aggregate (African) estimation of leverage effect manifested volatility clustering and asymmetry while was also in weak form of efficiency. These findings show that African stock markets lagged behind in term of maturity and capacity for competing with stock markets in developed economies.

Keywords: Leverage, Efficiency, Volatility, Market Returns