Testing the weak-form efficiency in African stock markets


Ntim, Collins G., Opong, Kwaku K., Danbolt, Jo and Dewotor, Frank S. (2011) Testing the weak-form efficiency in African stock markets. Managerial Finance, 37, (3), 195-218. (doi:10.1108/03074351111113289).

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Description/Abstract

Purpose – The purpose of this paper is to investigate and compare the weak-form efficiency of a set of 24 African continent-wide stock price indices and those of eight individual African national stock price indices.

Design/methodology/approach – Variance-ratio tests based on ranks and signs were used to examine the weak-form efficiency of the 32 stock price indices investigated.

Findings – On average, it was found that irrespective of the test employed, the returns of all the 24 African continent-wide stock price indices examined in the study are less non-normally distributed compared to the eight individual national stock price indices examined. The authors also report evidence of the African continent-wide stock price indices having significantly better weak-form informational efficiency than their national counterparts.

Practical implications – The policy implication of this evidence is that the African equity price discovery process can be significantly improved if African stock markets integrate their operations. Economically, this may contribute to improved liquidity and more efficient allocation of capital, which in turn can be expected to have a positive impact on economic growth.

Originality/value – The paper makes two major contributions to the extant literature. First, it offers for the first time a comparative analysis of the informational efficiencies of a sample of national stock price indices as against African continent-wide stock price indices. Second, there is no prior evidence as to whether African stock markets can improve their informational efficiencies by integrating their operations. The paper fills this gap by demonstrating that the African equity price formation process can be improved if African stock markets integrate their operations.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1108/03074351111113289
ISSNs: 0307-4358 (print)
Related URLs:
Subjects: H Social Sciences > HG Finance
Divisions : Faculty of Business and Law > Southampton Business School > Centre of Excellence for International Banking, Finance & Accounting
ePrint ID: 343008
Accepted Date and Publication Date:
Status
May 2011Published
Date Deposited: 20 Sep 2012 10:24
Last Modified: 30 Sep 2016 18:07
URI: http://eprints.soton.ac.uk/id/eprint/343008

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