The Nature Of Causal Nexus Among The Stock Market Indices Of South Africa And Select African Markets

Abstract

The study aims to present the linkages or relationship among South African stock market and five other major stock markets in Nigeria, Morocco, Mauritius, Botswana and Kenya using various econometric techniques. The analysis relies on standard and well accepted techniques of ADF Test, Johansen cointegration test and Granger causality to uncover the long-run relationship among the variables using monthly data of six variables for a period of 11 years and 3 months. The responses of a variable to innovations in other variables are traced by simulating Impulse Response Function. This study reveals absence of cointegration between the selected markets. But a uni-directional causality is indicated from LMASI to LJSE, LJSE to LSEMDEX and LJSE to LBSE. Impulse Response Function shows that that a shock on LJSE solicits an increase in LBSE which is consistent with the Granger Causality.