Information flow between stock returns of advanced markets and emerging African economies

Umar-Farouk Atipaga, Imhotep Alagidede and George Tweneboah

Research in International Business and Finance, 2025, vol. 73, issue PA

Abstract: This article used transfer entropy techniques to examine information flows of daily stock market returns between advanced markets and emerging African economies. We modelled the information transfers across different periods of global shocks – the Federal Reserve Bank normalisation post the Global Financial Crisis, oil price shocks, BREXIT, the U.S.-China trade war, and COVID-19. Information interactions from advanced to African markets were moderate, occasionally mixed, and insignificant, leaving room for portfolio diversification. We also discovered some progress regarding the integration process between the developed and African markets on the back of noticeable information exchanges. Our findings from the information exchanges indicate that the stock markets of South Africa, Egypt, Nigeria, and Kenya have led the integration process ahead of their peers. To robust-check our results, we employed the wavelet multiple correlation (WMC) technique by modelling the multi-structure relationship among all the stock markets and confirmed the fast integration between the South African stock market and the developed markets. Our WMC results also revealed that portfolio diversification opportunities are feasible in the short term. The results present important implications for optimal risk management strategies and policy measures to anchor markets to withstand shocks.

Keywords: African stocks; Information transfer; Advanced markets; Entropy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:73:y:2025:i:pa:s0275531924003969

DOI: 10.1016/j.ribaf.2024.102603

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