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Are African Stock Markets Efficient? A Comparative Analysis Between Six African Markets, the UK, Japan and the USA in the Period of the Pandemic

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Listed:
  • Dias Rui

    (CEFAGE – Centro de Estudos e Formação Avançada, em Gestão e Economia, Universidade de Évora, Portugal)

  • Pereira João M.

    (Universidade Aberta, Portugal)

  • Carvalho Luísa Cagica

    (CEFAGE – Centro de Estudos e Formação Avançada, em Gestão e Economia, Universidade de Évora, Portugal)

Abstract

The aim of this study is to test and compare the efficient market hypothesis, in its weak form, on the stock markets of Botswana, Egypt, Kenya, Morocco, Nigeria, South Africa, Japan, the UK and the USA from 2 September 2019 to 2 September 2020. This study is based on the following research question: has the global pandemic (COVID-19) reduced the efficiency – in its weak form – of African financial markets compared to the mature markets of the UK, Japan and the USA? The results sustain the evidence that the random walk hypothesis is not supported by the financial markets analysed in the period of the global pandemic. The variance ratio values are lower than the unit, which implies that the returns are self-correlated over time. A reversion to the average is also observed, with no differences identified between mature and emerging financial markets. In corroboration, the Detrended Fluctuation Analysis (DFA) exponents show that the financial markets present signs of (in)efficiency in its weak form, thus showing persistence in the yields. This therefore implies the existence of long memories validating the results of the variance using the Wright’s Rank and Signs Test (2000), which prove the rejection of the random walk hypothesis.

Suggested Citation

  • Dias Rui & Pereira João M. & Carvalho Luísa Cagica, 2022. "Are African Stock Markets Efficient? A Comparative Analysis Between Six African Markets, the UK, Japan and the USA in the Period of the Pandemic," Naše gospodarstvo/Our economy, Sciendo, vol. 68(1), pages 35-51, March.
    • Handle: RePEc:vrs:ngooec:v:68:y:2022:i:1:p:35-51:n:1
    DOI: 10.2478/ngoe-2022-0004
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    References listed on IDEAS

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    1. Summers, Lawrence H, 1986. "Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
    2. Adedoyin Isola Lawal & Russel O Somoye & Abiola Ayopo Babajide, 2017. "Are African stock markets efficient? Evidence from wavelet unit root test for random walk," Economics Bulletin, AccessEcon, vol. 37(4), pages 2665-2679.
    3. Ikechukwu Kelikume, 2016. "New evidence from the efficient market hypothesis for the Nigerian stock index using the wavelet unit root test approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(5), pages 185-197, Special I.
    4. Qing He & Junyi Liu & Sizhu Wang & Jishuang Yu, 2020. "The impact of COVID-19 on stock markets," Economic and Political Studies, Taylor & Francis Journals, vol. 8(3), pages 275-288, July.
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    Cited by:

    1. Talebi, Alireza & Bragues, George & Hadlul, Seham & Sharma, Agam, 2025. "Global Stock Markets during Covid-19: Did Rationality Prevail?," Research in International Business and Finance, Elsevier, vol. 73(PA).

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    More about this item

    Keywords

    African stock markets; efficient market hypothesis; mean reversion; random walk;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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