An analysis of the linkages among African and world equity markets

In this paper, we provide the first comprehensive analysis of the dynamic relationships between the returns of emerging African equity markets and the world?s major equity markets during January 1988 - May 2000. Using a vector autoregression (VAR) model, we find that all the African equity markets, except those in South Africa and Namibia, are segmented as movements in these markets are mainly influenced by domestic factors. Surprisingly, South Africa, the largest African equity market, has minimal influence on all other markets, except Namibia. Generally, the empirical results do not support intra-continental comovements. We also document a very low degree of international comovement among the African equity markets and the major world equity markets, except South Africa and Namibia where a relatively large proportion of the variation in market returns can be attributed to the influences of overseas markets. The results suggest that apart from South Africa and, to a lesser extent, Namibia, the emerging equity markets of the African region are not integrated with the major world equity markets, including the British and the French markets with which these countries have strong historical, trade and economic ties. Thus, we conclude that while technological developments have increased the level of integration among many developed and regional equity markets, the same cannot be said of the African equity markets, with the possible exception of South Africa.