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Why a Diversified Portfolio Should Include African Assets

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  • Paul Alagidede

    ()
    (Department of Economics, University of Stirling, UK)

  • Theodore Panagiotidis

    ()
    (Department of Economics, University of Macedonia, Greece; RCEA, Italy)

  • 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 The Rimini Centre for Economic Analysis in its series Working Paper Series with number 33_10.

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Date of creation: Jan 2010
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Handle: RePEc:rim:rimwps:33_10

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

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  1. 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.
  2. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
  3. Søren Johansen, 2007. "Correlation, regression, and cointegration of nonstationary economic time series," CREATES Research Papers 2007-35, School of Economics and Management, University of Aarhus.
  4. Steven B. Kamin, 1999. "The current international financial crisis: how much is new?," International Finance Discussion Papers 636, Board of Governors of the Federal Reserve System (U.S.).
  5. 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.
  6. 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.
  7. Singh, Ajit, 1999. "Should Africa promote stock market capitalism?," MPRA Paper 54291, University Library of Munich, Germany.
  8. Pedro H. Albuquerque, 2005. "Optimal Time Interval Selection in Long-Run Correlation Estimation," Econometrics 0511017, EconWPA, revised 27 Nov 2005.
  9. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  10. 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.
  11. 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.
  12. 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.
  13. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, September.
  14. Kim, E Han & Singal, Vijay, 2000. "Erratum [Stock Market Openings: Experience of Emerging Economies]," The Journal of Business, University of Chicago Press, vol. 73(4), pages na, October.
  15. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc.
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