Integration of the African Stock Markets to the Global Markets: Case Study of South Africa

The paper empirically investigates the extent to which the South African stock market is integrated to other African stock market as well as the developed markets as represented by the US, Japan and German. The study employs the Autoregressive Distributed Lag (ARDL) approach to cointegration because it is a more reliable method than other conventional cointegration approaches and is also applicable even if the series are integrated of different orders, as long as none is of order 2 or more. It is also more robust and performs well for small sample sizes unlike the conventional approaches which are valid for large sample sizes. The results of empirical tests suggest that the South African stock market is fully integrated to the developed markets. However, the South African stock market is not fully integrated to other African stock markets. This suggests that investors can diversify their portfolios by investing in other African stock markets. DOI: 10.5901/mjss.2014.v5n2p619