The widespread creation of stock markets in developing countries is oneof the most conspicuous features of international financial development in thepast three decades. The number of stock markets in Africa increased from onlysix before 1989 to 21 by 2004. The quest for long-term capital for developmentand the increasing role played by stock markets in the efficient allocation ofresources made the stock market culture inevitable in most cases.'Africa's emerging markets represent a fast growing part of the worldeconomy, and empirical evidence suggests that they have low, even negative,correlations with the more developed financial markets. Thus inclusion ofAfrican assets in a mean-variance efficient portfolio could significantly reduceportfolio volatility and increase expected returns.In spite of these facts, little is known about Africa's markets. Althoughthe Efficient Markets Hypothesis (EMH) has been with us for nearly fivedecades, and knowledge of stock return behaviour has been accumulating inemerging market economies of Asia and Latin America, Africa's marketscontinue to escape the attention of the research community.This thesis contributes to our knowledge of the dynamic behaviour ofstock returns in Africa's biggest markets (South Africa, Egypt, Nigeria, Kenya,Tunisia and Morocco). The novelty of this study rests on applying a variety ofeconometric techniques and which leads to the following conclusions:Weak form efficiency is rejected for all the markets; however, this isdiscussed with reference to the institutional characteristics of the marketsstudied (i. e., capitalisation, turn over, liquidity and information and legalarchitecture). Seasonal patterns exist in African stock returns: however, withappropriate specification, they tend to disappear, and where they are significant,they tend to be unexploitable. We also show that Africa's markets are not wellintegrated, regionally, and globally. While this evidence calls for more opennessto trade and policy coordination, it also implies that Africa's markets can play arole in diversifying investment risk. Finally, stock prices tend to provide a hedgeto investors against rising consumer prices over a relatively long period of time.
