A test of integration between the South African and selected African stock markets

Sithole, Rumbidzai Praise and Eita, Joel Hinaunye (2020): A test of integration between the South African and selected African stock markets.

Abstract

This study investigates the relationship that exists between the South African stock market and selected African stock markets. It employs the Johansen cointegration test and incorporate the Markov-Switching Vector Error Correction Model (MS-VECM) for this purpose. The MS-VECM nests appealing properties which provide insightful information regarding the interaction of the variables in the system within different regimes as well as the response to disequilibrium. The model enables one to classify regimes as contingent on the parameter switches in full sample and hence one can identify any transition in the system. The results indicate that these selected stock markets share the same stochastic trend in the long run, but cointegration is in its weak form. A weak form of cointegration suggests that these stock markets jointly offer potential gains for portfolio diversified investment suggesting international investors should consider these markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: African stock markets, Stock market integration, Johansen approach, linear VECM, MS-VECM, portfolio diversification
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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