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Price Integration between Europe and Regional Markets in Africa: A Test of the Law of One Price

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Listed:
  • Jenifer Piesse

    (Management Centre School of Social Science and Public Policy - King‘s College London)

  • Bruce Allen Hearn

    (Management - University of Leicester)

Abstract

This study examines the degree of price-integration of equity index assets between the major markets of Africa, namely Morocco, Tunisia, Egypt, Kenya, Nigeria, Namibia and South Africa with the prominent European markets of London and Paris. The application of Vector Autoregressive and Autoregressive Distributed Lag methods reveals that African markets are largely price-segmented. The only markets that are price-integrated have shared economic and financial institutions such as Namibia and South Africa, and Egypt, Tunisia and France. The evidence suggests that development policy should be focussed on enhancing existing institutions rather than embarking prematurely on regional integration.

Suggested Citation

  • Jenifer Piesse & Bruce Allen Hearn, 2011. "Price Integration between Europe and Regional Markets in Africa: A Test of the Law of One Price," Post-Print hal-00711449, HAL.
    • Handle: RePEc:hal:journl:hal-00711449
    DOI: 10.1080/00036846.2011.570722
    Note: View the original document on HAL open archive server: https://hal.science/hal-00711449
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    References listed on IDEAS

    as
    1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    2. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
    3. deB. Harris, Frederick H. & McInish, Thomas H. & Shoesmith, Gary L. & Wood, Robert A., 1995. "Cointegration, Error Correction, and Price Discovery on Informationally Linked Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(4), pages 563-579, December.
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