Country Risk and Stock Market Performance in Africa

  • Mubarak Jalingo

Student thesis: Doctoral ThesisDoctor of Philosophy


Country risk factors have become an important source of systematic and nonsystematic risk in capital markets. Therefore, how to effectively manage country risks has become an increasing concern for researchers and investors. Country risk is a broad and complex subject which financial scholars have studied from many perspectives. This thesis consists of three empirical chapters that focus on examining the impact of country risk on the performance of nine African stock markets over the period 1998 to 2018, namely, Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Tunisia, and Zambia.

In the first empirical chapter, the long-run relationship and causality between country risk and stock market returns are examined using Pedroni (2004) and the Johansen-Fisher panel cointegration techniques proposed by Madalla and Wu (1999); the Granger causality and Dumitrescu-Hurlin panel causality approaches are also used. The results suggest that long-run relationships and causal linkages exist between country risk and stock market returns.

In the second empirical chapter, the impact of disaggregated country risk factors is investigated using a pooled mean group dynamic panel model. The results indicate that African markets are negatively affected by country risk in the long run. That is, as a group, African markets are significantly impacted by country risk. In particular, a rise in the level of disaggregated elements of country risk for African countries is typically associated with a reduction in the performance of their stock market indices.

Finally, to investigate the extent to which country risk influences the level of stock market linkages in Africa, the thesis studies cross- and own-volatility linkages among African stock markets using the ADCC GARCH model. An analysis of the results reveals evidence that country risk increases the level of stock market volatility and integration in Africa. The evidence supports the notion that ‘country risk’ influences stock returns and volatility in Africa. These findings imply that equity returns in African stock markets are predictable from changes in country risk; this result calls the weak form of the EMH into question since it suggests that an investor could outperform by studying country risk data in the region.
Date of Award2022
Original languageEnglish
SupervisorSuzanne Fifield (Supervisor) & David Power (Supervisor)

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