PhD (Statistics) / Department of Statistics / There has been a growing interest in investment opportunities in Africa. The net foreign direct
investment (FDI) to Sub-Saharan Africa has increased from $13 billion in 2004 to about $54 billion
in 2015. Investing on the stock markets is one of such investment opportunities. Stock markets in
Africa have realised growth in market capitalization, membership, value and volume traded due to an
increase in investments. This level of growth in African stock markets has raised questions about their
efficiency. This thesis examined the weak-form informational efficiency of African stock markets. The
aim therefore of this thesis is to test the efficiency of African stock markets in the weak-form of the
Efficient Market Hypothesis (EMH) for eight countries, namely, Botswana, Egypt, Kenya, Mauritius,
Morocco, Nigeria, South Africa and Tunisia. Since, the researcher will be testing the weak-form of the
EMH, the data to be used is on past price information on the markets of the eight countries. Data for
the eight countries were obtained from DataStream for the period between August 28, 2000 to August
28, 2015. The data is for a period of 180 months which resulted in 3915 data points.
Although there have been studies on the weak-form market efficiency of African stock markets, the
efficiency conclusions on the markets have been mixed. This problem might be due to the methods used
in the analyses. First, most of the methods used were linear in nature although the data generating
process of stock market data is nonlinear and hence nonlinear methods maybe more appropriate in its
analysis. Also these linear methods tested the efficiency of African markets in absolute form, however,
an efficiency conclusion relying solely on absolute efficiency might be misleading because, stock markets
become efficient with time due to improvements in the quality of information processing from reforms on
the markets. The researcher solved this problem of using absolute frequency by comparing the results
when the presence of long-memory in frequency and time domains of the markets were examined.
The researcher used a semi-parametric estimator, the Local Whittle estimator to test for long-memory
in frequency domain and the Detrended Fluctuation Analysis (DFA) to test for long-memory in time
domain. The DFA method is suitable for both stationary and nonstationary time series which makes
it to have more power over methods like the rescaled range analysis (R/S) in the estimation of Hurst
exponent.
Second, the researcher examined whether the markets were predictable under the Adaptive Market
Hypothesis (AMH). The researcher employed the Generalised Spectral (GS) test to examine the Martingale
difference hypothesis (MDH) of the markets. The Generalised spectral (GS) test is a non-parametric
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test designed to detect the presence of linear and nonlinear dependencies in a stationary time series.
The GS test considers dependence at all lags.
Third, because of the nonlinear nature in the data-generating process on the markets, the stationarity of
the market returns under a nonlinear Exponential Smooth Threshold Autoregressive (ESTAR) model was
examined. A nonlinear ADF unit root test against ESTAR and a modified Wald-type test against ESTAR
in the analysis were employed. Fourth, the self-exciting threshold Autoregressive (SETAR) method was
employed to model the returns when non-linear patterns were observed as a result of nonlinear data
generating process on the markets.
The literature on market efficiency of African stock markets has shown that variations exist in the study
characteristics. There are variations in the method of analysis, type of test, type of data employed, time
period chosen and the scope of analysis for the studies. The researcher therefore quantitatively reviewed
previous studies by means of meta-analysis to identify which study characteristics affects efficiency
conclusions of African markets using the mixed effects model.
The findings showed the presence of long-memory in the returns of the stock markets when the whole
sample was used. This made the markets weak-form inefficient, however, when the researcher tested
for the persistence of long-memory through time, there were periods the markets were efficient in the
weak-form. The memory effect was low in the South African market but high in the Mauritian market.
Furthermore, it was observed that, the returns for Egypt, which were highly predictable when the whole
data was analysed became not highly predictable when the rolling window approach of the GS test was
used. Egypt had one of the lowest percentages of the windows that had a p-value less than 0.05 after
South Africa.
The results obtained from using the non-linear unit root tests on the logarithmic price series of the
markets under study showed that, the markets were non-stationary and hence weak-form efficient under
an ESTAR framework but for Botswana. Thus the markets were weak-form efficient when analysed
using a non-linear method. This observation means that Africa’s foreign direct investment would have
been increased over the years if the appropriate methods are used. This is because, over the years,
studies on the weak-form efficiency African stock markets have ended with mixed conclusions with most
of the markets being concluded to be weak-form inefficient as a result of the use of linear methods in
the analysis. This finding, to us, has had an effect on investors commitments to Africa because the
right methodology was not employed.
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The findings from modelling the returns under the non-linear SETAR model showed that, the SETAR
model performs better than the standard AR(1) and AR(2) model for all the markets under study after
the non-linear patterns were identified in the returns series. The SETAR (2,2,2) model is a threshold
model, therefore, investors are able to move freely in search of higher opportunities between the low and
high regimes. Investors main aim is to make profits, hence, the threshold model of SETAR gives them
the freedom to move to a regime where the rate of returns is increasing unlike the standard AR(1) and
AR(2) linear models where there are no switching of regimes.
Finally, none of the study characteristics in the market efficiency studies was found to be significant
in efficiency conclusions of African stock markets but the indicator for publication bias was significant.
This means that there has been a change in attitude in recent years towards studies on informational
market efficiency whose results do not support the Efficient Market Hypothesis (EMH), unlike the earlier
years when the EMH was formulated and acclaimed to be one of the best propositions in economics.
It was therefore concluded that when time-varying methods are used in analysing weak-form efficiency,
the dynamics of the markets become known to investors for proper decision-making. Also, nonlinear
methods should be used in order to reflect the nonlinear nature of data capturing on the stock markets / NRF
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:univen/oai:univendspace.univen.ac.za:11602/1099 |
| Date | 18 May 2018 |
| Creators | Numapau, Gyamfi Emmanuel |
| Contributors | Kyei, Kwabena, Gill, Ryan |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 1 online resource (xv, 124 leaves : illustrations (some color) |
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