Stock market integration in West Africa

Abstract

The study focused on the integration of stock exchanges within West Africa using a Non-linear Auto Regressive Distributed Lag (NARDL). Market capitalizations as a percentage of GDP of the various markets within the region were obtained from the World Development Indicator (2014) and used to determine whether the markets move in the same direction both in the long and short runs. The empirical results indicated that market capitalization for the various countries was I(1) and I(0). The short run estimations showed some form of relationship between the stock exchanges but the relationships were not clear as to the nature of the direction. In the long run there exist a relationship only between the Ghana stock exchange and the Bourse Regionale des Valeurs Mobilieres stock exchange. No long run relationship exists between the Ghana stock exchange and the Nigeria stock exchange. The study further recommended that investors should embark on cross listings and portfolio diversification since there is the presence of potential gains due to the absence of information asymmetry and low transaction cost within the Ghana Stock Exchange, the Nigeria Stock Exchange and the Bourse Regionale des Valeurs Mobilieres Stock Exchange. The major stock exchange bodies should also embark on fostering the establishment of stock exchanges as well as their integration within ECOWAS.