Should Africa’s emerging markets still be considered as a separate asset class?

ABSTRACT

This article examines the correlation of Africa’s emerging markets regionally and globally using the Continuous Morlet Wavelet (CMW) transform. The superiority of this technique is that it is able to estimate correlation in a time-varying manner and derive all information about structural changes in the data through a phase difference technique. We find that Africa’s emerging equity markets are partially segmented regionally and globally. Although correlations may have increased over time, we suggest that emerging markets in Africa should still be considered as a separate asset class.

KEYWORDS:

• Wavelet coherency
• African stock markets
• co-movement
• segmentation
• diversification

JEL CLASSIFICATION:

• C40
• F36
• G11
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Grinsted, Moore, and Jevrejeva (2004).

² MSCI-COM is a free float-adjusted market capitalization index designed to reflect the performance of the entire three underlying commodity markets: energy, metals and agricultural products.

Additional information

Funding

The financial assistance of the National Research Foundation (NRF) of South Africa under the Competitive Programme for Rated Researchers (CPRR) is duly acknowledged. The opinions expressed and the conclusions arrived at, are those of the authors and not necessarily attributed to the NRF.