Globalization and equity returns in African frontier markets

Abstract

Globalization has significant implications for risk sharing and diversification, cost of capital, market efficiency, financial decisions and macro-economic policy. This study investigates globalization which is measured in three different ways in 8 African frontier markets, from 1997 to 2013. The investigation is conducted using a Panel regression model and it explores whether integration affects equity returns. The factors used in this study are orthogonal to each other and the important fundamentals are inflation and money supply. The researcher finds evidence that the extent of African market globalization has a significant impact to their equity markets. The findings support partially integrated African market. The evidence is generally sensitive to the period of investigation suggesting changing integration through time.