Can Emerging African Stock Markets Improve Their Informational Efficiency by Formally Harmonising and Integrating Their Operations?

46 Pages Posted: 17 Jul 2011

See all articles by Collins G. Ntim

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Kwaku K. Opong

University of Glasgow - Adam Smith Business School

Jo Danbolt

University of Edinburgh Business School

Frank Senyo Dewotor

Newmarket Asset Management

Date Written: July 12, 2008

Abstract

Despite experiencing rapid growth in their number and size, African stock markets remain highly segmented, small, illiquid and technologically bankrupt, severely affecting their informational efficiency. On this basis, with specific focus on the weak-form of the efficient markets hypothesis, we attempt to empirically ascertain whether African stock markets can improve their informational efficiency by formally harmonising and integrating their operations using a new robust non-parametric variance-ratios test in addition to its parametric alternative. On average, we find that irrespective of the diagnostic used, all the 24 African continent-wide indices applied returns’ display better normal distribution properties than those of the 8 individual national stock price indices examined. We record evidence of statistically significant improvements in the informational efficiency of the African continent-wide stock price indices over the individual national stock price indices used irrespective of the test statistic applied. The potential improvement in efficiency to be gained is much higher in economic sectors indices than in size and regional indices. Finally, consistent with prior evidence, (eg., Wright, 2000; Belaire-Franch and Opong, 2005, Ntim, et al., 2007), the results of the Lo and MacKinlay (1988) parametric variance-ratios test are ambiguous. By contrast, the ranks and signs alternative offer consistent results throughout.

Keywords: African stock markets, Integration, Efficiency, Variance-ratios, Ranks and signs

JEL Classification: G11, G12, G14

Suggested Citation

Ntim, Collins G. and Opong, Kwaku K. and Danbolt, Jo and Dewotor, Frank Senyo, Can Emerging African Stock Markets Improve Their Informational Efficiency by Formally Harmonising and Integrating Their Operations? (July 12, 2008). Available at SSRN: https://ssrn.com/abstract=1884262 or http://dx.doi.org/10.2139/ssrn.1884262

Collins G. Ntim (Contact Author)

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Kwaku K. Opong

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

Frank Senyo Dewotor

Newmarket Asset Management ( email )

37-38 Golden Square
London, W1J 5BQ
United Kingdom

HOME PAGE: http://www.nmasset.com

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