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Why a Diversified Portfolio Should Include African Assets

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  • Paul Alagidede

    () (University of Stirling)

  • Theodore Panagiotidis

    () (University Of Macedonia)

  • Xu Zhang

    () (Economic Research Institute, Guosen Research Institute, China)

Abstract

We employ parametric and non-parametric cointegration to investigate the extent of integration between African stock markets and the rest of the world. Long-run correlation estimates imply very low association between the two. The two distinct cointegration approaches confirm the latter through recursive estimation. The implication is that global market movements may have little impact on Africa. However,we argue that including African assets in a mean variance portfolio could be beneficial to international investors.

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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1034.

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Length: 16 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:koc:wpaper:1034

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Keywords: Correlation; Long-run correlation; Cointegration; Non-parametric cointegration; African Stock Markets;

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  1. Bracker, Kevin & Docking, Diane Scott & Koch, Paul D., 1999. "Economic determinants of evolution in international stock market integration," Journal of Empirical Finance, Elsevier, vol. 6(1), pages 1-27, January.
  2. Pedro H. Albuquerque, 2005. "Optimal Time Interval Selection in Long-Run Correlation Estimation," Econometrics 0511017, EconWPA, revised 27 Nov 2005.
  3. Breitung, Jorg & Taylor, A. M. Robert, 2003. "Corrigendum to "Nonparametric tests for unit roots and cointegration" [J. Econom. 108 (2002) 343-363]," Journal of Econometrics, Elsevier, vol. 117(2), pages 401-404, December.
  4. Kim, E Han & Singal, Vijay, 2000. "Stock Market Openings: Experience of Emerging Economies," The Journal of Business, University of Chicago Press, vol. 73(1), pages 25-66, January.
  5. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
  6. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-93, December.
  7. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  8. Bekaert, Geert, 1995. "Market Integration and Investment Barriers in Emerging Equity Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 75-107, January.
  9. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 306-333.
  10. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
  11. Ajit Singh, 1999. "Should Africa promote stock market capitalism?," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 343-365.
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