Correlation of stock market returns in the west african region from 2008 to 2016
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Abstract
Description
Stock markets over the world have become more interconnected due to activities of
foreign investors in search for alternative financial assets and markets to invest in order
to diversify their portfolio. Stock market indices and index returns have been known to
reflect linkages between different markets. This study assesses the extent of correlation
of stock market index returns in West Africa and those of the United States of America
(US) and United Kingdom (UK) from 2008 to 2016. The correlation between the index
returns for the entire sample period and yearly samples were considered for Nigeria,
Ghana, the BRVM, the USA and the UK. The indices selected for the five countries
considered are the Nigerian All-Share Index, Ghanaian Composite Index, the BRVM
Composite Index, the Financial Times 100 Index and the Standards and Poor’s 500
Index. Daily index returns data were used for the study and analyzed using correlation
and multiple regression analysis. Findings revealed that the returns of the pairs of the
United States of America (US) and the United Kingdom (UK) exhibited stronger positive
correlation with each other than the other market pairs in the study both in the
entire sample period and the yearly sub-period analysis. The correlations between the
other market pairs were either positively or negatively weak or very weak indicating
more diversification opportunities.
Keywords
HB Economic Theory, HG Finance