Unobserved structural shifts and asymmetries in the random walk model for stock returns in African frontier markets

The purpose of this study is to examine the weak-form market efficiency hypothesis (EMH) for 8 African Frontier markets (Nairobi Securities Exchange of Kenya, the Nigerian Stock Exchange of Nigeria, Botswana Stock Exchange of Botswana, Zimbabwe Stock Exchange of Zimbabwe, Johannesburg Stock Exchange of South Africa, Egyptian Exchange of Egypt, Casablanca Stock Exchange of Morocco, the Tunis Stock Exchange of Tunisia). To achieve this purpose we employ unit root testing procedures which are robust to both nonlinearities and smooth structural breaks. To further allow for vigorousness in our empirical analysis we employ two time series datasets for each of the capital markets, namely daily and weekly time series. To the best of our knowledge, our study becomes the first, to investigate the weak-form EMH for all 8 African frontier markets whilst simultaneously accounting for asymmetries and smooth structural breaks. Our empirical findings suggest that most African frontier markets are not market efficient, in the weak sense form, with the exception of the Kenyan stock market and to a very much lesser extent the Botswana and South African stock series. Important policy and investor implications are drawn in our study.