Cointegration Analysis of Major African Stock Markets

Jimbo Henri Claver^1, , Bruno Dinga², Fono Louis³, Shu Felix² and Andjiga Gabriel⁴

¹Department of Applied Mathematics and Statistics, AUAF & Waseda University, Tokyo, Japan, (Joint Research)

²Department of Mathematics and Computer Science, University of Bamenda, Cameroon

³Department of Applied Mathematics, University of Douala, Cameroon

⁴Department of Applied Mathematics, University of Yaounde - I, Cameroon

Cite this paper:
Jimbo Henri Claver, Bruno Dinga, Fono Louis, Shu Felix and Andjiga Gabriel. Cointegration Analysis of Major African Stock Markets. International Journal of Econometrics and Financial Management. 2019; 7(1):37-45. doi: 10.12691/ijefm-7-1-5

Abstract

Globalization, technological advancements and financial liberalization have made it possible for stock markets in different countries to interact and affect and/or influence each other both in the short-run and in the long-run. This study uses the Dickey-Fuller, Engle-Granger method and the Johansen method to test for cointegration using a pair wise analysis between the stock markets in five African countries. These countries are Nigeria, Egypt, South Africa, Morocco, and Mauritius. The Granger causality test is equally used to understand the short-run linkages between the stock markets. All statistical tests are carried out using the R statistical software. Weekly stock indices from January 2010 to December 2015 are employed, with each stock price expressed in local currency. Correlation between the stock markets is very low, with the strongest correlation coefficient being just 31% between the stock Exchange of Mauritius and the Johannesburg Stock Exchange. Cointegration analyses reveal long-run associationship between twelve, out of the twenty-one pairs of stock markets. Granger causality tests reveal bidirectional causality between the South African and Mauritian stock markets and the South African and Nigerian stock markets. Unidirectional causality was also found from the Nigerian stock market to the Moroccan stock market and from the Nigerian stock market to the Mauritian stock market. This research will help investors to invest wisely in the stock markets examined. It will equally aid economic experts and policy makers in these countries to understand the impact of a shock on economic variables on the economy.

Keywords:
Co-integration Johansen test Engle-Granger test Dickey-Fuller test Granger causality time series analysis stock markets econometric.

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