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CONTAGION AND INTERDEPENDENCE IN AFRICAN STOCK MARKETS
Author(s) -
Collins D.,
Biekpe N.
Publication year - 2003
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2003.tb00077.x
Subject(s) - cape , stock (firearms) , citation , investment (military) , library science , political science , geography , law , computer science , archaeology , politics
EVENTS IN EMERGING FINANCIAL MARKETS during the past decade have given rise to a fevered debate about the role of global integration in capital markets. The Mexican peso crisis of 1994, the Asian crisis of 1997 and the subsequent Russian and Brazilian crises of 1998 have provided new data with which to examine the transmission of financial variable movements from one country to another. Are African markets caught up in the same web, or are they more dependent on co-movements with each other? When emerging markets were first becoming a viable asset class in the early 1990s, Harvey (1995) suggested that part of their initial appeal was their low correlations with developed markets. It was assumed that they would then serve neatly as a hedge in a global portfolio. But as Harvey (1995) also showed, emerging market correlations with developed markets were changing through time, as they became more integrated into the global financial system. Most of the literature on financial markets and growth has focused on the benefits of global integration. When a market becomes financially integrated, companies can access a large new pool of investors. The cost of equity may decline and more investment projects are then viable. The result is increased growth and employment. Levine (2001) shows that liberalising restrictions on international portfolio flows tends to enhance stock market liquidity, which in turn accelerates economic growth by increasing * School of Management Studies, University of Cape Town, and Africa Centre for Investment Analysis, University of Stellenbosch, respectively.