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Are African stock markets efficient? Evidence from wavelet unit root test for random walk

Author

Listed:
  • Adedoyin Isola Lawal

    (Dept. of Accounting and Finance, Landmark University, Nigeria)

  • Russel O Somoye

    (Dept. Accounting, Banking and Finance, Olabisi Onabanjo University, Ago Iwoye)

  • Abiola Ayopo Babajide

    (Covenant University, Ota)

Abstract

In this paper, we used the recently developed frequency based wavelet unit root test alongside a number of time domain unit root tests to examine the validity or otherwise of the random walk hypothesis for seven African largest markets. Unlike previous studies that affirms the validity of the random walk behaviour for African markets, our results reveal that when frequency domain is factored into stock market behaviour framework, evidence abound to reject the null of unit root test for each of the African markets studied. This implies that African markets are inefficient, contributes to growth and provide good opportunities for arbitrage trading. The results have critical implications for investors, policy makers as well as the academics.

Suggested Citation

  • Adedoyin Isola Lawal & Russel O Somoye & Abiola Ayopo Babajide, 2017. "Are African stock markets efficient? Evidence from wavelet unit root test for random walk," Economics Bulletin, AccessEcon, vol. 37(4), pages 2665-2679.
    • Handle: RePEc:ebl:ecbull:eb-16-00790
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    References listed on IDEAS

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    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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    7. Dewandaru, Ginanjar & Masih, Rumi & Masih, A. Mansur M., 2016. "Contagion and interdependence across Asia-Pacific equity markets: An analysis based on multi-horizon discrete and continuous wavelet transformations," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 363-377.
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    Cited by:

    1. Adedoyin Isola Lawal & Afees Adebare Salisu & Abiola John Asaleye & Ezeikel Oseni & Bukola Bose Lawal-Adedoyin & Samuel Olatunde Dahunsi & Emmanuel Oluwasola Omoju & Abigail Oyeronke DickTonye & Eliza, 2022. "Economic Growth, Exchange Rate and Remittance Nexus: Evidence from Africa," JRFM, MDPI, vol. 15(6), pages 1-13, May.
    2. Dias Rui & Pereira João M. & Carvalho Luísa Cagica, 2022. "Are African Stock Markets Efficient? A Comparative Analysis Between Six African Markets, the UK, Japan and the USA in the Period of the Pandemic," Naše gospodarstvo/Our economy, Sciendo, vol. 68(1), pages 35-51, March.
    3. Iyabo Adeola Olanrele & Adedoyin I. Lawal & Ezekiel Oseni & Ahmed Oluwatobi Adekunle & Bukola, B. Lawal-Adedoyin & Crystal O. Elleke & Racheal Ojeka-John & Henry Nweke-Love, 2020. "Accessing the Impacts of Contemporary Development in Biofuel on Agriculture, Energy and Domestic Economy: Evidence from Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 469-478.
    4. Daouda Lawa Tan Toe & Mamadou Toe & Tibi Didier Zoungrana, 2023. "Investigating the weak and semi-strong forms of Informational Efficiency on the West African Economic and Monetary Union’s Stock Exchange (BRVM) through returns predictability tests," SN Business & Economics, Springer, vol. 3(9), pages 1-27, September.
    5. Adedoyin Isola Lawal & Abiola John Asaleye & Henry Inegbedion & John Dean Ojeka & Stephen Kayode Adekunle & Enoch Olaniyan & T. David Eyiolorunshe & Olayinka Abosede Olabode, 2019. "Does Commercial Banking Activities Exerts on Agricultural Growth in Nigeria? Evidence from ARDL Framework," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, December.
    6. Abiola Ayopo BABAJIDE & Funso Abiodun OKUNLOLA & Adedoyin Isola LAWAL & Victoria Bosede AKINJARE & Bukola Bose LAWAL-ADEDOYIN, 2021. "Financial Inclusion: Implication on Per Capita Income in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(8), pages 603-617, August.
    7. Kelikume, Ikechukwu & Evans, Olaniyi & Iyoha, Faith, 2020. "Efficient Market Hypothesis in the Presence of Market Imperfections: Evidence from Selected Stock Markets in Africa," MPRA Paper 118200, University Library of Munich, Germany.
    8. Adedoyin Isola LAWAL & Ezekiel OSENI & Abiola John ASALEYE & Bukola LAWAL-ADEDOYIN & Rachael OJEKA-JOHN, 2021. "Is the Stock Market Efficient? Evidence from Nonlinear Unit Root Tests for Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(5), pages 384-395, May.

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    More about this item

    Keywords

    Stock markets; Wavelet unit root test; frequency-domain; Africa; random walk hypothesis;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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