Why African Stock Markets Should Formally Harmonise and Integrate their Operations

Despite experiencing rapid growth in their number and size, existing evidence suggests that
African stock markets remain highly fragmented, small, illiquid and technologically weak,
severely affecting their informational efficiency. Therefore, this study attempts to empirically
ascertain whether African stock markets can improve their informational efficiency by formally
harmonising and integrating their operations. Employing parametric and non-parametric
variance-ratios tests on 8 African continent-wide and 8 individual national daily share price
indices from 1995 to 2011, we find that irrespective of the test employed, the returns of all the 8
African continent-wide indices investigated appear to have better normal distribution properties
compared with the 8 individual national share price indices examined. We also report evidence
of statistically significant weak form informational efficiency of the African continent-wide
share price indices over the individual national share price indices irrespective of the test statistic
used. Our results imply that formal harmonisation and integration of African stock markets may
improve their informational efficiency.