Are African stock markets efficient? Evidence from wavelet unit root test for random walk

Adedoyin Lawal (), Russel Somoye () and Abiola Babajide ()
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Russel Somoye: Dept. Accounting, Banking and Finance, Olabisi Onabanjo University, Ago Iwoye
Abiola Babajide: Covenant University, Ota

Economics Bulletin, 2017, vol. 37, issue 4, 2665-2679

Abstract: In this paper, we used the recently developed frequency based wavelet unit root test alongside a number of time domain unit root tests to examine the validity or otherwise of the random walk hypothesis for seven African largest markets. Unlike previous studies that affirms the validity of the random walk behaviour for African markets, our results reveal that when frequency domain is factored into stock market behaviour framework, evidence abound to reject the null of unit root test for each of the African markets studied. This implies that African markets are inefficient, contributes to growth and provide good opportunities for arbitrage trading. The results have critical implications for investors, policy makers as well as the academics.

Keywords: Stock markets; Wavelet unit root test, frequency-domain; Africa, random walk hypothesis (search for similar items in EconPapers)
JEL-codes: G1 G3 (search for similar items in EconPapers)
Date: 2017-11-19
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Citations: View citations in EconPapers (8)

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