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Regionalization versus Internationalization of African Stock Markets: A frequency-time domain analysis

Gideon Boako and Paul Alagidede ()

No 642, Working Papers from Economic Research Southern Africa

Abstract: This paper examines regional and global co-movemnt of Africa’s stock markets using the three-dimensional continuous Morlet wavelet transform methodology. The analyses which are done in segments investigate co-movements with global markets; bilateral exchange rates expressed in US dollars and euro; and four regional markets in Africa. First, we find evidence of stronger co-movements broadly narrowed to short-run fluctuations. The co-movements are time-varying and commonly non-homogeneous – with phase difference arrow vectors implying lead-lag relationships. The presence of lead-lag effects and stronger co-movements at short-run fluctuations may induce arbitrage and diversification opportunities to both local and international investors with long-term investment horizons. The findings also reveal that some African equity markets are, to a degree, segmented from volatilities of the dollar and euro exchange rates. Thus, inferring that international investors may diversify their portfolio investments across those markets without worrying about the effects of currency price volatility.

Keywords: wavelet coherency; African stocks; volatilities; Co-movement; exchange rates; diversification. (search for similar items in EconPapers)
JEL-codes: C40 F36 G11 G15 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-10
New Economics Papers: this item is included in nep-afr
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