Feedback Trading and Autocorrelation Patterns in Sub-Saharan African Equity Markets

ABSTRACT

This article examines feedback trading and autocorrelation pattern of stock returns in the equity markets of Ghana, Kenya, Nigeria, and South Africa. We find evidence that positive feedback trading induces negative autocorrelation in the stock returns of Ghana, Kenya, Nigeria, and South Africa. The negative autocorrelation occurs during periods of increasing volatility, and all the four equity markets exhibit volatility asymmetry. We also find that Ghana, Nigeria, and South Africa were influenced by the 2008–2009 global financial crisis, and South Africa experienced the largest impact. These findings may have implications for risk management and price discovery in these equity exchanges.

KEY WORDS:

• EGARCH
• feedback trading
• financial crisis
• sub-Saharan Africa

JEL CLASSIFICATION:

• E37
• G14
• G15

Acknowledgments

We are grateful to the participants at the 21st Annual Conference of the Multinational Finance Society, Prague, Czech Republic. We are also indebted to the editor and three anonymous reviewers whose constructive comments improved the article.

Notes

^1. We thank one of the referees for this suggestion.

^2. Please see The African Securities Exchanges Association 2011 Year Book at http://www.african-exchanges.org/library/ and Africa Strictly Business at http://www.africastrictlybusiness.com/lists/top-performing-african-stock-markets-2013.

^3. See Koutmos and Theodossiou (1994) and Bhar and Nikolova (2009).

^4. We again thank one of the referees for this suggestion.