The Performance of African Stock Markets Before and After the Global Financial Crisis

The empirical evidence shows that, in comparison to Industrialized, Asian and Latin American countries, African stock markets recorded the best performance in a mean-variance space before the crisis, January 2000 to December 2007, with the highest average monthly returns and levels of total risk (standard deviation of returns) that equaled the score of Industrialized countries and were significantly lower than for Asian and Latin American stock markets. Their average systematic risk (Beta relative to the S&P 500) was significantly lower than that of their counterparts in other regions. However, during the crisis, January 2008 to February 2015, they recorded the sharpest declines among regions in their average returns and an increase in their total and systematic risk. Their average Sharpe and Treynor ratios, and their Jensen’s Alpha also underscored significant deterioration of their performance between the pre-crisis and the crisis period and ranked them from the best investment destination to the poorest one for a US-based investor. Results also show that African stock markets were prime candidates for inclusion in the equity portfolio of US-based investors seeking international diversification before the crisis, a situation that was reversed during the crisis for African countries and other regions alike. Weak recovery of African stock markets is documented by the inability of most of them to return to their pre-crisis index levels and the lower average returns that they have recorded since the peak of the global financial crisis.