Return predictability in African stock markets

This paper models weekly index returns adjusted for thin trading as a nonlinear autoregressive process with conditional heteroscedasticity to investigate the weak‐form pricing efficiency of 11 African stock markets. Specifically, the use of the EGARCH‐M model allows us to capture how conditional volatility affects the pricing process without imposing undue restrictions on the parameters of the conditional variance equation. On the basis of such a robust model, we are able to reject the evidence in prior studies that the Nigerian stock market is weak‐form efficient. On the other hand, we confirm extant results that the markets in Egypt, Kenya, and Zimbabwe are efficient while that of South Africa is not weak‐form efficient. We also generate new results, which point to the efficiency of the stock markets in Mauritius and Morocco, while the markets in Botswana, Ghana, Ivory Coast, and Swaziland are not consistent with weak‐form efficiency.