Regional and global market integration of African financial markets

The study examines the degree of regional and global integration of 11African Stock Markets (ASMs) using monthly return series from 1997 to 2015. It tests for the existence of structural breaks and whether any detected significant break in the regional and global degrees of integration caused an increase or decrease in segmentation. Additionally, the study examines the impact of the 2008 Global Financial Crisis (GFC) on the regional and global integration of the ASMs. Evidence is provided that suggests: (i) a time-varying regional and global integration of the ASMs; and (ii) that global integration dominates regional integration for all of the ASMs. The ASMs are more globally integrated, relative to their degrees of regional integration. Significant structural breaks are detected, which for most countries are associated with an increase in the degree of integration and for others a decrease in the degree of integration. Most of the observed structural breakpoints in the degree of global integration correspond with the GFC; however, the structural shifts in regional integration are largely unrelated to the GFC. The evidence shows that geographic proximity may have minimal impact on market integration unless there is an associated regional economic integration. Regional diversification benefits may thus exceed that of global diversification and vice versa depending on the extent and direction of economic activities of the economies of the geographic region.