Contagion and interdependence of African Equity Markets
Date
2012-11-20
Authors
Olatunde, Olufemi Babatunde
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Abstract
Background
This study examines the topic of contagion and interdependence of select African
equity markets. Interdependence is measured over a five year period split into a full
period, pre-crisis period and a crisis period. Also, contagion effects on five African
equity markets as a result of the United States (US), sub-prime triggered financial
crisis are ascertained.
This study has two aims. First, it seeks to determine the strength of the relationship
between equity markets in Africa. Secondly, it examines if any of the selected African
markets suffered contagion effects as a result of perhaps the hardest hitting financial
crisis of all time.
Using data supplied by a financial research firm, I-net Bridge, data representing
closing market indices over a six-year period (2004 to 2009) for six equity markets
(including that of the US and five African equity markets) were collated and analysed
for the purpose of the study.
Results
The results of this study are generally consistent with those of previous studies with
respect to both research aims. Results show that African equity markets show very
weak statistical relationship with each other. With the exception of South Africa and
Egypt results also point to weak statistical relationship with the US's equity market.
This is in line with previous research attempting to establish interdependence of
African markets. With regard to the second research aim, three of the countries
tested for contagion (Egypt, South Africa and Nigeria) were found to have suffered
contagion effects as a result of the US- sub-prime triggered financial crisis. The other
two, Botswana and Kenya, did not suffer contagion effects. These results are partly
consistent with those of previous research. Past research often showed South Africa
and Egypt to have suffered contagion effects as a result of financial events.
Description
MBA thesis - WBS
Keywords
Equity markets