The Integration of African Stock Markets into the Global Financial System

Seely, Derek Crompton
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ABSTRACT This report constitutes an exploratory study into African stock markets and the effect that the 2008 financial crisis has had on the degree of co-integration on these exchanges within the global financial environment. In recent years, globalisation, economic and financial integration among countries and their financial markets have increased the interdependency among major world stock markets. The study of the available literature has, as its focus, the influence of stock markets as a key determinant of economic development, providing an incentive for government sponsorship. The dynamics of equity investment in Africa and the resultant variable degree of co-integration of these markets with the rest of the world, partially explains Africa’s vulnerability to future global disruptions or crises. The empirical work, has as its foundation, the data collected from Bloomberg and analysed using the co-integration concepts suggested by the researchers Messrs P. Philips and S. Ouliaris. African governments appear to have embraced stock markets and the potential benefits that they hold for their countries’ economic development. This policy influences both global investors’ asset allocation decisions and future domestic economic policies aimed at ensuring economic stability. The evidence presented indicates that the rise in volatility in global markets since the financial crisis has resulted in a self-sustaining contagion effect on African stock markets strengthening their degree of global integration. However, despite this improvement in integration, these markets, individually, are not closely linked to either developed country stock markets or their global economic drivers, suggesting that Africa will continue to experience capital inflows as fund managers seek the international risk diversification that these markets offer.
MBA 2012
Capital market, Finance, Stock exchanges