Tail risk analysis, evolving efficiency and relative predictability of the African stock markets

Abstract

In this article, we use extreme value analysis to investigate the tail risk behavior of 12 emerging African stock markets using three developed stock markets as benchmarks. Our results indicate that many of the African stock markets like South Africa, Zambia, Côte d’Ivoire, Egypt, Namibia, and Uganda are riskier and can yield higher expected returns than the major developed stock markets in Asia, Europe, and America. But, the expected returns for Kenya can sometimes be equivalent to those of the developed stock markets. The stock markets belonging to Botswana, Mauritius, Morocco, Nigeria, Kenya, and Tunisia are mainly characterized by lower expected returns and lower loss compared to the major developed stock markets. We implemented the generalized spectral test with a rolling window to investigate the adaptive predictability of the African stock markets. Our results confirmed that the South African stock market is the least predictable stock market in Africa while the Nigerian stock market is the most predictable stock market in Africa.

KEYWORDS:

• Expected shortfall
• martingale sequence
• stock market
• value at risk

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Acknowledgments

The authors would like to thank the editor and the two referees for careful reading and comments which greatly improved the article.