Equity Market Integration Versus Segmentation in Three Dominant Markets of the Southern African Customs Union: Cointegration and Causality Tests

34 Pages Posted: 23 Jul 2008

See all articles by Jenifer Piesse

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

Bruce Allen Hearn

University of Southampton

Date Written: July 20, 2008

Abstract

Empirical tests of theories of financial market integration and segmentation have predominantly focussed on developed OECD countries and the emerging markets of Asia Pacific. This paper uses a unique panel of equity market indices from the principal Southern African Customs Union (SACU) markets. The paper tests the hypothesis of market integration using a cointegration approach. Markets that are found to be integrated are then tested for evidence of Granger causality through an error correction mechanism. Results obtained using VAR modelling techniques are compared to those using an ARDL model. While results lend support to existing trade, macroeconomic and developmental linkages and effects between and within the countries, there is some evidence for the presence of a regional factor common to African Emerging Markets that explains causality from Namibia to South Africa. The results support the view that institution building has progressed, which is considered to be a valuable contribution to growth promotion policies in SSA and market integration throughout financial markets in the SADC community

Keywords: Financial market Integration, causality, SACU, African markets

JEL Classification: C22, G15, O16

Suggested Citation

Piesse, Jenifer and Hearn, Bruce Allen, Equity Market Integration Versus Segmentation in Three Dominant Markets of the Southern African Customs Union: Cointegration and Causality Tests (July 20, 2008). Applied Economics, Vol. 14, No. 1, 2002. Available at SSRN: https://ssrn.com/abstract=1163773

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

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