Prospects for portfolio diversification on the continental stock markets?
Evidence from long term comovements
By Tinashe Harry Dumile Kambadza(1) and Zivanemoyo Chinzara(2)
The Department of Economics and Economic History, Rhodes University

his paper investigates the integration of major African stock markets and how this has implications for portfolio diversification using daily data for the period 2000-2010. Firstly, we examine long run comovements using both bivariate and multivariate Johansen (1988) and Johansen and Juseluis (1990) approaches. Both bivariate and multivariate models found slim evidence of cointegration amongst the markets, suggesting opportunities for portfolio diversification whilst the 2007-2009 financial crisis had little impact on long term relationships. In general, our findings indicate that the African stock markets are not integrated with each other except for South African and Namibia and Egypt and Morocco to a lesser extent. Because of this, there are vast opportunities for portfolio diversification for investors on the African continent.

Keywords: Financial integration, Portfolio diversification, VECM, Vector Autoregressive, ASEA, COMESA, ECOWAS, SADC, MENA.

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