Does mean reversion occur in selected African stock markets?

Chia, Ricky Chee Jiun and Pang, Wan Xin (2021) Does mean reversion occur in selected African stock markets? The Empirical Economics Letters, 20. pp. 191-197. ISSN 1681-8997

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Abstract

This study examines the mean reversion of two Emerging Markets (Egypt and South Africa) and five Frontier Markets (Kenya, Mauritius, Morocco, Nigeria and Tunisia) by examining the stationarity of stock prices using several panel unit root tests. Empirical results show that the unit root tests (ADF, GD-GLS and PP) cannot be rejected for most of the stock prices in this study. However, the Kwiatkowski-Phillips-Schmidt-Shin (KPSS) test, which has more power than ADF in detecting unit root, however, is only able to identify in Egypt, Kenya and Nigeria which are more flexible enough to revert to its long run equilibrium. Due to the limitation of Univariate Unit Root Tests, we resort to panel unit root tests for more reliable findings. The Panel Unit Root Tests showed evidence of stock price in these countries is rejecting the random walk hypothesis. Therefore, there is an evidence of mean reversion in these markets. As a consequent, shocks to the prices is temporary effect, and the movement of stock prices in this study is predictable. Investors may consider the past information and behaviour in the markets to develop their trading strategy to beat the market.

Item Type:	Article
Keyword:	Mean reversion , African stock market , Panel unit root
Subjects:	H Social Sciences > HG Finance > HG1-9999 Finance > HG4501-6051 Investment, capital formation, speculation
Department:	FACULTY > Labuan Faculty of International Finance
Depositing User:	SAFRUDIN BIN DARUN -
Date Deposited:	12 Jul 2022 19:54
Last Modified:	12 Jul 2022 19:54
URI:	https://eprints.ums.edu.my/id/eprint/33118

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