Konstantinos Vergos and Benjamin Wanger

Correspondence: Konstantinos Vergos, konstantinos.vergos@port.ac.uk

Portsmouth Business School, United Kingdom

pdf (612.3 Kb) | doi:


This study evaluates the linkages between stock markets and macroeconomic data in the sub-Sahara Africa during the 2008 –2018 period by using VECM. Our findings confirm unidirectional and bidirectional causalities, and a long-run equilibrium between the indexes, the stock exchanges and their national economies. The contemporaneous sectoral infectivity surpasses the long-run responses. While the banking sector was found to lead markets and macroeconomic indices, Nigerian, Moroccan and Swaziland markets were found to be most weakly integrated. Our findings provide a unique evidence of interdependence between African peripheral markets that could be used in cross-hedging and speculative strategies in fund management.


  Asset pricing, Africa, interdependence, VECM


ABP. (2018). The Emerging Markets Of Africa. Retrieved June 1, 2018, from Africa Business Pages: http://www.africa-business.com/features/africa-emerging-business.html

Abrams, J. R., Celaya-Alcala, J., Gonda, D. B., & Chen, Z. (2017). Analysis of Equity Markets: A Graph Theory Approach. Department of Mathematics, University of Arizona. Retrieved May 31, 2018, from https://www.siam.org/students/siuro/vol10/S01563.pdf

African Markets. (2016). About Zimbabwe Stock Exchange. Retrieved June 15, 2018, from African Markets: https://www.african-markets.com/en/stock-markets/zse/about

AFX. (2018). African Stock (Securities) Exchanges Live. Retrieved June 11, 2018, from African 'Xchanges: https://afx.kwayisi.org/

Agyei-Ampomah, S. (2017). Stock market integration in Africa. Retrieved May 31, 2018, from SemanticsScholar:https://pdfs.semanticscholar.org/e4ae/7aede145d720de43e05669421f155c04201e.pdf

Al-Fayoumi, N. A., Khamees, B. A., & Al-Thuneibat, A. A. (2009). nformation Transmission among Stock Return Indexes:Evidence from the Jordanian Stock Market. International Research Journal of Finance and Economics, 1(24).

Allen, F., & Gale, D. (2000). Financial Contagion. journal of political economy, 108(1).

Alomari, M., Power, D. M., & Tantisantiwong, N. (2017). Determinants of equity return correlations: A case study of the Amman Stock Exchange. Review of Quantitative Finance and Accounting, 50, 33-66. doi:https://doi.org/10.1007/s11156-017-0622-4

Arbelaez, H., Urrutia, J., & Abbas, N. (2001). Short-term and long-term linkages among the Colombian capital market indexes. International Review of Financial Analysis, 10(3), 237-273.

ASEA. (2018). Members. Retrieved June 11, 2018, from African Securities Exchange Association.: http://african-exchanges.org/en/membership/members/swaziland-stock-exchange

Asteriou, D., & Hall, S. G. (2007). Applied Econometrics (2 ed.). New York, China: Palgrave Macmillan. doi:10: 0-230-50640-2

Baur, D. G. (2012). Financial contagion and the real economy. Journal of Banking and Finance, 36(10), 2680-2692. doi:10.1016/j.jbankfin.2011.05.019

BdT. (2018). Presentation. Retrieved June 11, 2018, from Bourse de Tunis: http://www.bvmt.com.tn/en-gb/content/presentation

Bekaert, G., Hodrick, R. J., & Zhang., X. (2009). International Stock Return Comovements. Journal of Finance, 64(6).

Bernabe, E. M., Parcon-Santos, H. C., & Hallig, J. M. (2016). Spillovers in ASEAN-5 Equity.

Markets. Center for Monetary and Financial Policy. Monetary Policy Sub - Sector Series No. 2016-02.

Billio, M., Captorin, M., Frattaloro, L., & Petizon, L. (2016). Networks in Risk Spillovers: A Multivariate GARCH Perspective. SSRN Electronic Journal DOI: 10.2139/ssrn.2742051.

Binder, J. J. (2001). Stock Market Volatility and Economic Factors. Review of Quantitative Finance and Accounting, 17(1), 5-26.

Binici, M., K¨oksal, B., & Orman, C. (2012). Stock return comovement and systemic risk in the Turkish banking system. MRPRA Paper. Retrieved June 1, 2018, from https://mpra.ub.uni-muenchen.de/38663/1/Systemic_Risk_in_Turkey.pdf

Brewer, A. (2005). Cantillon, Quesnay, and the Tableau Economique. Department of Economics, University of Bristol. Retrieved July 06, 2018, from http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp05577.pdf

Brooks, C. (2008). Introductory Econometrics for Finance (2 ed.). Cambridge: University Press. Retrieved March 28, 2018, from https://www.pdfdrive.net/introductory-econometrics-for-finance-2nd-ed-trading-software-e16674753.html

Cao, D., Long, W., & Yang, W. (2013). Sector Indices Correlation Analysis in China’s Stock Market. Information Technology and Quantitative Management. 17, pp. 1241 – 1249. Beijing: Procedia Computer Science. doi:doi: 10.1016/j.procs.2013.05.158

Cartwright, P. &. (2015). Do Spot Prices Predict Future Futures Prices? Paris School of Business. Retrieved July 17, 2018, from http://dx.doi.org/10.13140/RG.2.1.5107.9843

Chiang T, Lao L, Xue Q (2016): Comovements between Chinese and global stock markets: evidence from aggregate and sectoral data. Review of Quantitative Finance and Accounting, 47(4): 1003–1042.

Chiang, T., & Chen, X. (2016). Empirical Analysis of Dynamic Linkages between China and International Stock Markets. Journal of Mathematical Finance(6), 189-212.

Chuang, I.-Y., Lu, J.-R., & Tswei, K. (2007). Interdependence of international equity variances: Evidence from East Asian markets. Emerging markets Review, 311-327.

Claessens, S., & Forbes, K. (2004). International Financial Contagion: The Theory, Evidence and Policy Implications. (Boston: Kluwer Academic Publishers).

CSE. (2018). Casablanca Stock Exchange: History and Listed Companies. Retrieved June 12, 2018, from Casablanca Stock Exchange: http://www.casablanca-bourse.com/bourseweb/en/index.aspx

David, J. M., & Simonovska, I. (2016). Correlated beliefs, returns, and stock market volatility. Journal of International Economics, 99, 558-577.

Deltuvaitė, V. (2016). Cross-Border Contagion Risk Transmission Through Stock Markets Channel: The Case of the Baltic Countries. Financial Environment and Business Development, 43-54. https://link.springer.com/chapter/10.1007/978-3-319-39919-5_4

DSE. (2018). Listed Companies. Retrieved June 11, 2018, from Dar es Salaam Stock Exchange PLC: http://dse.co.tz/listed-companies

Duca, G. (2007). The Relationship Between The Stock Market And The Economy: Experience From The International Financial Markets. Bank of Valletta Review, 36. file:///C:/Users/COOL/Downloads/Gevit_Duca_No_36_Autumn_2007.pdf

EGX. (2018). Histroy of the Egyptian Stock Exchange. Retrieved July 18, 2018, from http://www.egx.com.eg/Arabic/History.aspx

Eiling, E., Gerard, B., Hillion, P., & Roon, F. d. (2012). International Portfolio Diversification: Currency, Industry and Country Effects Revisited. Journal of International Money and Finance, 31(5), 1249-1278.

Elton, E. J., Gruber, M. J., Brown, S. J., & Goetemann, W. N. (2011). Modern Portfolio Theory and Investment Analysis (8 ed.). John Wiley & Sons, Inc.

Emenike, K. O. (2017). Analysis of Sectors on Nigeria Stock Market: Evidence from Correlation, Serial Correlation, and Heteroscedasticity. Journal of Contemporary Economic and Business Issues, 4(2), 21-36.

Engle, R. (2002). Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models. Journal of Business & Economic Statistics, 20,(3), 339-350. doi:10.1198/073500102288618487

Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, 25(2), 383-417.

Fama, E. F. (1981). Stock Returns, Real Activity, Inflation, and Money. The American Economic Review, 71(4), 545-565.

Fama, E., & French, K. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance, 47(2).

Farooq, M., & Shawkat, H. (2007). Shock and volatility transmission in the oil, US and Gulf equity markets. International Review of Economics and Finance, 16(3), 357-368.

Forbes, K. J., & Rigobon, R. (2002). Forbes KJ, Rigobon R (2002) No contagion, only interdependence: measuring stock market comovements. Journal of Finance, LVII(5), 2223-2261.

Foresti, P. (2007). Testing for Granger Causality Between Stock Prices and Economic Growth. Munich Personal RePEc Archive(2962).

Forner, C., & Marhuenda, J. (2003). Contrarian and Momentum Strategiesin the Spanish Stock Market. European Financial Management, 9(1), 67–88.

Garcia, R., Mantilla-Garcıa, D., & Martellini, L. (2014). A Model-Free Measure of Aggregate Idiosyncratic Volatility and the Prediction of Market Returns. Journal of Financial and Quantitative Analysis, 49(5/6), 1133–1165.

Gilchrist, S., & Zakrajˇsek, E. (2008). Linkages Between the Financial and Real Sectors: An Overview. Financial Stability and Linkages Between Financial and Real Sectors. Boston University, NIBER, Federal Reserve Board. Retrieved June 15, 2018, from  http://people.bu.edu/sgilchri/BOG_Gilchrist_Zakrajsek_24sep2008.pdf

Group of Ten. (2001). Report on Consolidation in the Finanial Sector. IMF. Retrieved May 31, 2018, https://www.imf.org/external/np/g10/2001/01/Eng/pdf/file1.pdf

GSE. (2018). Listed Companies. Retrieved June 11, 2018, Ghana Stock Exchange: https://gse.com.gh/listing/listed-companies

Hao, S., Jin, Q., & Zhang, G. (2011, July). Relative Firm Profitability and Stock Return Sensitivity to Industry-Level News. The Accounting Review, 86(4), 1321-1347.

Harris, R. D., & Pisedtasalasai, A. (2005). Return and Volatility Spillovers Between Large and small stocks in the UK. Xfi Centre for Finance and Investment. Retrieved June 1, 2018, https://ore.exeter.ac.uk/repository/bitstream/handle/10036/22100/0609.pdf?sequence=1

Herna´ndeza, L. F., & Valde, R. O. (2001). What drives contagion Trade, neighborhood, or financial links? International Review of Financial Analysis, 10, 203-218.

Hishiyama, I., & Takatera, S. (1960). The Tableau Economique of Quesnay: Its Analysis, Reconstruction, and Application. Kyoto University Economic Review, 30(1), 1-46.

Hogan, H., & Stein., J. (1999). A Unified Thoery of Underreaction, Momentum Trading and Overreaction in Asset Markets. Journal of Finance, 54(6).

Hong, H., Torous, W., & Valkanov, R. (2004). Do Industries Lead Stock Markets? Rady School of Management: https://rady.ucsd.edu/faculty/directory/valkanov/pub/docs/industries.pdf

Ikhide, N. M. (2014). Establishing linkages between Pension Funds and Capital Market Development in South Africa. 15th international_pension_workshop. Pretoria: University of Stellenbosch Business School.

Im, K.S., Pesaran, M.H., Shin, Y., (1997). Testing for unit roots in heterogeneous panels.

Mimeo, Department of Applied Economics, University of Cambridge.

Ishioro, B. O. (2013). Stock Market Development and Economic Growth: Evidence from Zimbabwe. ekon.misao praska DBK., 343-360. https://hrcak.srce.hr/file/166272

Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica, 59(6), 1551-1580.

Johnson, L. L. (1960). The Theory of Hedging and Speculation in Commodity Futures. The Review of Economic Studies, 27(3), 139-151.

JSE. (2016). JSE Overview. Retrieved June 11, 2018, from Johannesburg Stock Exchange: https://www.jse.co.za/about/history-company-overview#

Kim, M. H., & Sun, L. (2016). Dynamic Conditional Correlations between Chinese Sector Returns and the S&P500 Index: An Interpretation Based on Investment Shocks. Asian Finance Association. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2713602

Kolluri, B., & Wahab, M. (2008). Stock returns and expected inflation: evidencefrom an asymmetric test specification. Review of Quantitative Finance and Accounting, 30, 371–395.

Kouki, I., Harrathi, N., & Haque, M. (2011). A Volatility Spillover among Sector Index of International Stock Markets. Journal of Money, Investment and Banking(22).

Kutlu, V. (2010). The Long Term Relation Between Indirect and Direct Real Estate. Network for Studies on Pensions, Aging and Retirement (Netspar), 1-50.

Kwiatkowski, D., Phillips, P. C., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54, 159-178.

Leontief, W. W. (1936). Quantitative Input and Output Relations in the Economic Systems of the United States. The Review of Economics and Statistics,, 18(3), 105-125.

Marcus, A. (1989). An Equilibrium Theory of Excess Voi..Atility and Mean Reversion in Stock Market Prices. National Bureau of Economic Research, 3106.

Masih, A. M., & Winduss, T. (2006). Who Leads the Australian Interest Rates in the Short and Long Run? An Application of Long Run Structural Modelling. Review of Pacific Basin Financial Markets and Policies, 9(1), 1-24.

MSE. (2018). Listed Companies. Retrieved June 11, 2018, from Malawi Stock Exchange: http://mse.co.mw/index.php?route=counter/main/listed

NGSE. (2015). African Stock market performance at mid-year 2015. Retrieved June 10, 2018, from Nigerian Stock Exchange: https://marketsmuse.com/tag/nigerian-stock-exchange/

NGSE. (2018). ​​​​​​Corporate Overview​​​​. Retrieved June 11, 2018, from The Nigerian Stock Exchange: http://www.nse.com.ng/aboutus-site/about-the-nse/corporate-overview

Nicolo, G. D., & Kwast, M. S. (2002). Systemic Risk and Financial Consolidation: Are They Related? IMF Working Paper, 1-26.

NSE. (2018). Listed Companies. Retrieved June 11, 2018, from nairobi Securities Exchange: https://www.nse.co.ke/listed-companies/list.html?start=50

NSX. (2018). Listed Companies. Retrieved June 11, 2018, from Namibian Stock Exchange: http://nsx.com.na/?page_id=172

Ntim, C. G. (2012). Why African stock markets should formally harmonise and integrate their operations. African Review of Economics and Finance, 4(1), 3 - 72.

Nwosu, E. O., Orji, A., & Anagwu, O. (2013). African Emerging Equity Markets Re‐examined: Testing the Weak Form Efficiency Theory. African Development Review, 25(4), 485–498.

Patro, D. K., Qi, M., & Sun, X. (2013). A simple indicator of systemic risk. Journal of Financial Stability, 9, 105–116.

Pedroni, P., & Vogelsang, T. (2005). Robust Unit Root and Cointegration Rank Tests for Panels and Large Systems. International 11th International Panel Data Conference (p. 52). Texas: Texas A&M.

Phillips, P. C., & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika Trust-JSFOR, 75(2), 335-346.

Phylaktis, K., & Xia, L. (2009). Equity Market Comovement and Contagion: A Sectoral Perspective. Financial Management, 381-409.

Reuters, T. (2018). Test-Driving Industry Classification: Explaaining Return Comovements. https://www.google.co.uk/search?q=comovements+of+sectoral+equity+returns&rlz=1C1CHBF_en-GBGB799GB799&source=lnms&tbm=isch&sa=X&ved= 0ahUKEwjQvtDQ29TbAhWTHsAKHcT6BMUQ_AUICygC&biw=1242&bih=557#imgrc=d3H0A0eEo39miM:

S&P Capital IQ. (2018). Companies: Namibian Stock Exchange private company profile. (S&P Global Ratings) Retrieved June 11, 2018, S&P Capital IQ: https://www.capitaliq.com/CIQDotNet/company.aspx?companyId=128170279&fromSearchProfiles=true

S&P Global. (2018). Companies: Dar es Salaam Stock Exchange Public Limited Company (DAR:DSE) Public Company Profile. (S&P Global Ratings) Retrieved June 11, 2018, S&P Capital IQ: https://www.capitaliq.com/CIQDotNet/company.aspx?companyId= 182571331&fromSearchProfiles=true

Salisu, A. A. (2017). Multivariate Models. Retrieved June 20, 2018, from Centre for Econometric and Allied Research: file:///C:/Users/COOL/Downloads/VAR_VECM_Toda-YamamotoModels.pdf

Smith, G., & Dyakova, A. (2013). African Stock Markets: Efficiency and Relative Predictability. South African Journal of Economics. Retrieved June 10, 2018, from https://onlinelibrary.wiley.com/doi/full/10.1111/saje.12009

SSX. (2018). Listed Securities - Equities. Retrieved June 11, 2018, from Swaziland Stock Exchange: http://www.ssx.org.sz/index.php/2015-05-11-14-00-53/listed-securities-equities

USE. (2018). Companies. Retrieved June 11, 2018, from Uganda Securities Exchange: https://www.use.or.ug/listed-securities

Wang, Z., Kutan, A. M., & Yang, J. (2005). Information flows within and across sectors in Chinese stock markets. The Quarterly Review of Economics and Finance, 45(5-6), 767-780.

Wooldridge, M. J. (2006). Introductory Econometrics: A modern Approach. mason: Thomson South-Western.

Zhang, T. C. (2018). An Empirical Investigation of Risk-Return Relations in Chinese Equity Markets: Evidence from Aggregate and Sectoral Data. International Journal of Financial Studies, 35, 35. doi:doi:10.3390/ijfs6020035

ZSE. (2018). MARKET ANALYSIS SUMMARY. Retrieved June 15, 2018, from Zimbabwe Stock Exchange: https://www.zse.co.zw/#

International Markets

Live World Indices are powered by Investing.com

Sponsors and Partners

Stock quotes

Leading Stock Quotes powered by Investing.com