THE REPUBLIC OF TURKEY

BAHÇEŞEHİRUNIVERSITY

THE GRADUATE SCHOOL OF SOCIAL SCIENCES

An inquiry into the descendant trend of the African stock

sooq: A case study of the West African Monetary Union stock
sooq, the “Bourse Regional des Valeurs Mobilières” (BRVM)

FINANCIAL ECONOMICS

POST GRADUATE PROJECT

MOUSSA BAWA BADAGE

İSTANBUL, December 2019

 THE REPUBLIC OF TURKEY
BAHÇEŞEHİRUNIVERSITY

THE GRADUATE SCHOOL OF SOCIAL SCIENCES

An inquiry into the descendant trend of the African stock

sooq: A case study of the West African Monetary Union stock
sooq, the “Bourse Régionale des Valeurs Mobilières” (BRVM)

FINANCIAL ECONOMICS

POST GRADUATE PROJECT

MOUSSA BAWA BADAGE

Project Advisor: Prof. Rd. Bora ERDAMAR

İSTANBUL, December 2019

 T.C.
BAHÇEŞEHİR UNIVERSITY
THE GRADUATE SCHOOL OF SOCIAL SCIENCES

An inquiry into the descendant trend of the African stock sooq: A case
study of the West African Monetary Union stock sooq, the “Bourse
Régionale des Valeurs Mobilières” (BRVM)

This project has been found adequate and successful in terms of quantity and quality as a Graduation
Project.

------------------------------------ -----------------------------------
Advisor of the Project Member of the Commission
Title, Name and SURNAME Title, Name and SURNAME

3
4
 Table of Contents
Abstract....................................................................................................................6
Abbreviation……………………………………………………………………7
1. Introduction.........................................................................................................8
1.1.Description of West African Stock Exchange........................................................................................9
1.2. Activity of the bourse.........................................................................................................................11
1.3.Description of three main stock exhange Africa..................................................................................12
1.4. sooq linkage and correlation ...........................................................................................................15
1.5. Problem statement..............................................................................................................................19
2. Literature Review..............................................................................................21
3. Data and Methodology.....................................................................................30
4. Empirical analysis and finding.........................................................................32
5. Conclusion and discussion................................................................................41
References..............................................................................................................44

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 ABSTRACT

An inquiry into the descendant trend of the African stock sooq: A case study of the
West African Monetary Union stock sooq, the “Bourse Régionale des Valeurs
Mobilières” (BRVM)

MOUSSA BAWA BADAGE

The Graduate School of Social Sciences

Master of Financial Economics

The objective of this study is to investigate the performance of the stock sooq in
Sub Saharan Africa and to reveal the interdependence of the sooqs which
caused them to have similar reaction when there is a shock in a given fiscal. A
stock sooq is significantly important to any nation because of the huge volume
of transaction being done, which make it to have a direct impact to the fiscal.
When there is a negative impact to the fiscal, it affects directly the stock sooq
and the reverse is also possible when the negative impact comes from the stock
sooq. In our research we used the last price of different stock sooqs indexes and
regression analysis to evaluate the interdependence of the sooqs and the trend
over the years. At the end of the research we came to find that the sooqs show a
sign of correlation among them, so when there is a calamity in the region, it will
spread to the other sooqs.
Keywords: Stock sooq, correlation, trend, Sub Saharan Africa

December 2019, 44 pages

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 ABBREVIATIONS

BRVM: WEST AFRICAN REGIONAL STOCK EXCHANGE

NSE: NAIROBI STOCK EXCHANGE

JSE: JOHANESBURG STOCK EXCHANGE

NGSE: NIGERIA STOCK EXCHANGE

WAEMU: WEST AFRICAN ECONOMIC AND MONETARY UNION

BCEAO: CENTRAL BANK OF WEST AFRICAN STATE

IMF: ITERNATIONAL MONETARY FUND

AFCTA: AFRICAN COTINENTAL FREE TRADE AGREEMENT

IPO: INITIAL PUBLIC OFFERING

NYSE: NEW YORK STOCK EXCHANGE

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 Chapter 1

Introduction
The antiquity of stock transaction and trading associations can be traced as far back as the
11th century when Jewish and Muslim merchants set up trade connotations. After centuries of
evolution, stock sooqs have become the symbol of commerce in the modern world. It
operates in various countries and trades a range of securities. The world stock sooq
capitalisation is estimated to be about $ 69 Trillion with the New York stock exchange
foremost the way on behalf of $18.5 trillion in sooq capitalization, or about 27% of the total
sooq for global equities. The stock sooq has various functions such as capital armament,
investing opportunities, risk distribution etc. The major stock exchanges in the world today
include New York Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange,
Italian Stock Exchange, Hong Kong Stock Exchange and Tokyo Stock Exchange while all
the African Stock exchange represent less than 2%.
There have been various stock sooq crashes in the past such as the Wall Street crash of 1929,
the crash of 1973/74, the 1987 crash; called black Monday, the dotcom bubble of 2000 and
the more recent crash in 2008 caused by the subprime mortgage calamity in America. The
economic calamity of 2008 which originated in America spread to various economies in the
world and their stock sooqs were affected. It reduced the value of stocks around the world
by as much as 41% and affected both major and emerging stock sooqs.
A stock sooq is a place where stocks and securities can be exchanged or sold from one
owner to another. It is a place where buyers and sellers of securities meet. The process of
buying and selling is called trading.
Stock sooqs are divided into both primary and secondary sooqs. The primary sooq deals
with the citation of new companies on the exchange, these companies usually want to raise
finance. The secondary sooq deals with procurement and trade existing securities. It accounts
for the majority of the transactions that take place in the stock sooq.
There are various participants in stock sooqs. There are investors, brokers and sooq makers.
The investors can be individuals or institutional bodies that trade either on their own behalf or
on behalf of other investors. Broker’s act as agents who try to carry out trades on behalf of
their clients at the best possible price, the brokers also offer investment advice and research
services. The sooq maker is a dealer that quotes both buy and sell prices of securities on a
continual basis, if it is unable to find counterparties for a buy or sell order; they have to be
prepared to take an open position.
The stock sooq imitates and augments all economic flaws. When the fiscal looks good, the
stock sooq performs well and when the fiscal goes bad, the stock sooq imitates it as well.
A sooq crash is a large and sudden drop in monies bills. sooq clatters are usually
accompanied by large selling pressures in the sooq. The drop in asset prices occurs really
quickly while the recovery is a slow process.
A fiscal mishap is a disruption to financial sooqs which hinders the sooq’s capacity to
allocate capital. According to Porte’s and Vines (1997) all calamity is “calamity of
Success.” because initially the capital inflow into the sooq is a sign of economic promise and
success but this inflow is typically untenable.
When there is a pecuniary calamity in an emerging sooq such as most African countries, it
results in a series of bedlam. An fiscal which has promoted from large capital inflows stops

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receiving such inflows and faces a sudden reversal of capital flow. Financial calamity in
emerging sooqs are usually accompanied by snagsies of the concerned party to honour its
votive errands to foreign depositors. The anticipation of such snags could set off disorderly
actions if depositors rush to take out their investment from the calamity state. Over the last
two decades the African stock sooq has register a huge increased in the level of sooq
capitalization. Back in the days Africa only has 8 bourses among which 5 were in sub-
Saharan countries and three located in North Africa. Today we can count 29 stock exchanges
coming from 38 countries. Of those 29 stock exchanges, 24 are located in Sub-Saharan Africa
and 23 are members of the African Securities Exchange Association (ASEA). Among the
oldest exchanges in Sub-Saharan Africa are the Johannesburg Stock Exchange (JSE) founded
in 1887, the Nairobi Securities Exchange (NSE) in 1954 and the Nigeria Stock Exchange in
1960. The youngest exchanges in the region are the Rwanda Stock Exchange (RSE) founded
in 2008 and the Seychelles Securities Exchange (SSE) in 2012.
In our research we intend to look at the performance of the BRVM Stock sooq and its fellow
sooq, the paraphernalia of the comprehensive economic calamity on the African Stock
sooqs and, also the other encounters faced by the African stock sooq as emergent sooqs.
My intentions and points are to review extant conceptual models and theoretical frameworks
related to evolutionary trends of the stock sooq in Africa and to identify the cause of the
poor recital of the sooq and if there is any correlation among them which make most of
them having a negative yearly return almost at the same time. In our research we will start by
describing the BRVM and by pointing out the cause of the creation of regional stock
exchange, and we will then proceed with the description of three selected sooqs in the state
which are relevant. Then we will try to give a ephemeral swift of the trade and financial
relation among those countries, which can explain an interdependence midst them. We will
then proceed with the fiction review about the stock sooq and how are they important for an
fiscal, the past studies which have been done about the co movement of stocks. In our
research we will used the data of the main indexes of the stock sooqs subjected to the study
by using the last price. Indexes are very important for a stock sooq because they reflect the
overall performance of the companies which are listed on the sooq. I will try to recommend
solutions based on my research and the well performing stock sooq like the NYSE and try to
apply some of their policies and regulation among our sooq, and to recommend solutions
based on my research that will help to predict and prevent financial calamity.

1.1 Description of the West African Stock Exchange (BRVM)

The BRVM is the regional stock exchange in French speaking West Africa, namely Benin,
Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo. It was
established to replace the old Ivorian ``Bourse des Valeurs d’Abidjan`` (BVA).The
prerequisite of creating a regional pecuniary sooq dates back to the treaty of the West
African Economic and Monetary Union (WAEMU) signed by the member states in 1973 and
was reaffirmed through the 1980s reforms (Bio Tchane, 2011). In 1994, when the countries in
the sub region experienced fiscal and economic snags, the solution was to devaluate the CFA
Franc in order to diminish the imbalance of the fiscal. For this, it was established that it was
necessary to expand the actors in the financial environment, as well as diversify the
instruments of financial intermediation. Thus, it is under this strategy that BRVM was
created in order to expand the financial environment. The closure of the Stock Exchange of
Abidjan (BVA) actually followed up with the opening of the regional council of the Regional

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Stock Exchange (BRVM). After the establishment in December 1996 of the boards of
directors of the BRVM and the DC / BR, the transfer of files took place in January 1997 and
the dematerialization of values of the BVA began on 15 September 1997, that is, two months
after the signing of the agreement in Dakar on the establishment the Regional Council for
Public Savings and Financial sooq was instructed not only to organize and switch the public
subscription savings but also to empower and control stakeholders on the regional financial
sooq. The launch of the BRVM, however, did not take place within the sworn time because
of formal snags such as the conscripting of the general regulation, the establishment of a
definitive rating system, the realization of the project of the BRVM national branches, the
implementation of sooq manoeuvre rubrics and the establishment of the Central
Depository/Settlement Bank. After many years, the BRVM finally began its activities
through the centralized electronic quotation on the 16 September 1998 (Bengal, 2007). This
specialized financial institution governed by the law of the Regional Council of Public
Savings and Financial sooqs is a private limited company and a public service concession.
The BRVM is an electronic stock exchange built on the basis of the following architecture: a
centralized location in Abidjan, Cote d’Ivoire is connected to National Stock Exchanges
Branches (ANB) located in each WAEMU member states. This edifice consents equal access
to evidence in each state. Its main role is to centralize and process trading orders transmitted
by the foremost organizers of the stock sooq that are the management and intermediation
companies (Bengal, 2007). The Exchange began operations with 34 securities listed. The
quoting system currently used is centralized electronic citation by the orders transmitted by
the SGI that are not captured at the central site. The settlement of transactions is also done
centrally by the reservoir system. On the regional stock exchange, two indices represent the
bustle of the securities on the sooq. These are the BRVM Composite, which consists of all
the securities listed, and the BRVM 10, which is unruffled of the ten most active companies
on the sooq. The listing and the selection criteria for the BRVM Composite and BRVM 10
are based on the major stock indices in the world, especially the FCG index, from the
International Financial Corporation (IFC), an affiliate of the World Bank. The revenues taken
into account sooq capitalization, trading volume per session and frequency of transactions. In
addition, only ordinary shares are used to calculate the indices. Moreover, the liquidity factor
is fundamental in selecting the BRVM 10 index component values. In effect, for each of
them, the average transaction during the three months preceding the quarterly review should
not be lower than the median average daily amount of transactions of all stocks; and the
frequency of transactions must always be greater than 50 percent, with the stock traded at
least half the time during the study period of three months (Bengal, 2007). The indexes are
automatically generated by the system of negotiations of the BRVM and after each trading
session. Moreover, the BRVM 10 is revised four times a year (the first Monday in January,
April, July and October) and the BRVM Composite after registration of a new company for
listing, so as to be adapted to the sprouting regional fiscal sooq. With 39 listed companies in
2014, the BRVM had a sooq capitalization of USD 15 billion as of December 2015, which
positioned it as the sixth largest African exchange (Lyudvig, 2016). It was the continent’s
best performing stock exchange in 2015, with an appreciation of almost 18 percent of its
main index the BRVM Composite. Historically, foreign investors have constituted between
40 percent and 60 percent of the trading on the exchange. However, as domestic investors’
turnover increased sharply in 2015 and led to a 48 percent increase in overall turnover,
foreign investors participation fell to 25 percent. In terms of capital control measures, The
WAEMU zone keeps up restrictive measures on most capital exchanges with non-residents.
In all WAEMU nations, akin trials are in place and they are overseen jointly by the state’s
ministry of finance and the BCEAO. Despite the slight variations in the rules from state to

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state, a prior consent by the ministry of finance is generally required for nearly all outward
capital flows, with the exception of the amortization of obligations and settlement of short-
term mortgages. Specifically, this approval is needed in cases of capital depletions
transactions from residents to non-residents such as a direct venture overseas by residents,
including investment through foreign firms under direct or indirect control of residents; the
acquisition of money sooq instruments; the purchase of foreign securities; financial credits
and loans; the conceding of guarantees and sureties; the reinvestment of liquidation earnings;
as well as gifts and any other transfer of monies. Furthermore, an exchange authorization,
subject to the approval of the central bank is required for outflows of funds needed for the
servicing of credit facilities to non-residents (Kireyev, 2015: 8). Additionally, despite the
more liberal regulation on inward capital transfers, there are still considerable restrictions.
These include the renunciation to the BCEAO of all monies denominated in euros and other
currencies held by authorized forex dealers in their establishments. Furthermore, a
declaration to the national ministry of finance must be made in case of sales of corporate
securities to non-residents leading to the foreign control of domestic establishments. Also,
while non-residents are not allowed to list on a regional securities exchange, securities and
mutual funds that were issued outside the WAEMU region, they still require an authorization
by the Regional Council on Public Savings and Financial sooqs in order to issue securities,
real monies and money sooq instruments (Kireyev, 2015: 8).

1.2 Activity of the bourse

One year ago, the IMF had forecasted that the world fiscal will growth at 3.9% in 2018 and
2019. But things have not gone well with the trade war between China and the USA, the
instability in the fiscal of Turkey and Argentina, the car industry perturbation in Germany
and the restriction of mortgage policy in China and the weak performance of monetary policy
among the developed countries, all contributed in slackening down the world fiscal
expansion. The World Economic Outlook envisage a slackening in growth in 2019 for 70%
of the world fiscal. Global growth, which peaked at nearly 4% in 2017, fell to 3.6% in 2018,
and is expected to slow further in 2019, to 3.3%. Although global growth of 3.3% remains
reasonable, the outlook for many countries is kind of hopeless, with considerable short-term
uncertainty, especially as the growth rates of advanced countries converge to their modest
long-term potential.
In 2016, according to the International Monetary Fund (IMF) 1, global growth fell to 3.2%
against 3.4% in 2015 in connection with the deterioration of the outlook for advanced
countries, lower growth than expected in the United States. And an economic slowdown in
emerging countries and sub-Saharan Africa.
Indeed, in sub-Saharan Africa, activity experienced a marked slowdown to 1.4% in 2016
compared to 3.4% in 20152, largely due to the fall in commodity prices. Nigeria recorded a
recession in its fiscal with a GDP which contracted to - 1.6% in 2016 against 2.7% in 2015
due to the shortage of foreign exchange, activist activities in the Niger Delta and blackouts.
In South Africa, production slowed from 1.3% in 2015 to 0.3% in 2016. Against this
backdrop, the West African Economic and Monetary Union posted significant performances.
The growth rate of the Union stood at 6.9% in 2016 against 6.6% in 2015. According to the
forecasts of the Central Bank of West African States (BCEAO), this growth should remain
vigorous for the next few years. In addition, the inflation rate decelerated to 0.8% in March
2016 from 1.3% in December 2015 in connection with the availability of cereals on the
sooqs and the impact of lower international crude oil prices. on fuel prices at the pump in
some EU countries.

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Regarding capital sooqs, stock sooqs have evolved in a contrasted way in 2016. Indeed, in
2016, the main indices of the New York Stock Exchange in the United States, namely the
Dow Jones, the Nasdaq and the S & P 500 rose by 13.42%, 7.5% and 9.54% respectively
compared to 2015. In Japan, the Nikkei index rose by 0.42% from 19,033.71 points in 2015
to 19,114.37 points in 2016. In the Euro Zone, the EuroStoxx 50 index gained 0.70% in 2016
to 3,290.52 points in the wake of the CAC 40 in Paris (+ 4.86% at 4,862.31 points), Dax in
Frankfurt (+ 6.87% at 11,481.06 points) and Footsie 100 in London (+ 14.43% at 7,142.83
points).
This improvement is mainly explained by the effect of the election of Donald TRUMP as
President of the United States and the surge in oil prices following an agreement on the
reduction of the crude oil production concluded by the Organization of the Petroleum
Exporting Countries (OPEC).
In emerging sooqs, the Brazilian (IBOVESPA INDEX), Russian (RTS Standard Index) and
Indian (S&P BSE SENSEX INDEX) stock sooqs gained 38.93%, 26.63% and 1.95%
respectively. compared to their levels in 2015. In contrast, in China, due to the rebalancing of
the fiscal leading to a certain loss of investor confidence, the Shanghai (SSE Composite) and
Shenzhen (SZSE) stock sooqs fell, respectively -12.31% and -14.72% compared to 2015; the
Hong Kong Stock Exchange (HANG SENG INDEX) stabilized at + 0.39%.
These sooq developments are due to a decrease in concerns about China's near-term outlook,
slightly favourable macroeconomic news from other emerging countries, some recovery in
commodity prices, some expectations of a fall in interest rates in advanced countries and
favourable socio-political and geopolitical factors.
In Africa, the main stock sooq indices have experienced different trends depending on the
direction of economic activity in the main sectors. The Stock Exchanges of South Africa (JSE
ASI, -0.08%), Nigeria (NGSE ASI, -6.17%), Ghana (GSE-CI, -15.33%) and Kenya ( NSE
ASI, -8.48%) contracted unlike those of Egypt (EGX 30, + 76.2%), Morocco (MASI, +
30.46%), Zimbabwe (ZSE Industrial, + 25.84%), Namibia (NSX OI, + 23.47%) and Tunisia
(TUNINDEX, + 8.86%) which registered an increase.
The Regional Stock Exchange (BRVM) ended 2016 with almost all its indicators in the green
with the exception of its Composite index which contracted 3.87% after several years of
strong increases. Thus, the BRVM marked in a special and positive way, in addition to all the
distinctions received, the year of its 20th anniversary of existence. In 2019, the main indexes
of BRVM continue their downtrend by decreasing more in value. The BRVM 10 index which
was quoted at 261.95 points at the end of 2016 reach a value of 130.33 points in December
10th, 2019. Also, the BRVM composite index recorded a decreased of 84%, falling from
292.17 points to 140.45.

1.3 Description of three main stock exchange in Africa

The Johannesburg Stock Exchange

Established by Benjamin Woolman on November 8, 1887, the initial mission of the JSE was
to allow the new mines and their investors to collect the required capital for the mining
industry (Samyang, 2010). The growth of the South African fiscal led to an increase in the
number of industrial companies that first entered the mining firms on the lists of the JSE.
Following the financial sooq regulations of 1947, the JSE joined the World Federation of
Exchanges (WFE) in 1963, which accounts for at least 97 percent of the world capitalization
of the stock sooq. Through entering such a federation, the exchange became part of an
international network of collaboration and trust between countries and was able to participate

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in a controlled forum. During the 1980s, the mushrooming of publicly traded companies
worldwide did not fail to hit the JSE, which gave birth to two new stock classes: the
Development Capital sooq (DCM) catering for small firms with lower profits and business
size criteria; and the Venture Capital sooq (VCM) listing companies involved in greenfield
investments, provided that unique conditions were met (Moolma). In 1995, the JSE, like one
of the more mature sooqs as the United States of America (USA) and London, underwent a
consolidation plan aimed at sooq deregulation. This policy, by essentially lifting the
membership limitation that was traditionally only available to natural persons holding South
African citizenship and now opening up the sooq to everyone, including legal persons,
increased competitiveness and amount of trade. Foreign investors have since been net buyers
of more than R9.3 billion, compared with just R0.185 billion in 1994 (Moolman and Du Toit,
2005). This indicates that foreign investment plays a more critical role on the JSE, accounting
for more than 20 percent of its sooq capitalization, and sometimes a much larger share of its
daily trading (Moolman and Du Toit, 2005). Following the global trend, the stock exchange
phased out trade in June 1996 and switched to the JET (JSE Equities Trading) program for
electronic trading. South Africa has over 50 years of experience with resident and non-
resident exchange restrictions, dating back to the early 1960s. The South African Reserve
Bank, the body mandated to supervise and regulate the system of controls and capital inflows
and outflows, has used such measures as tools for controlling exchange rates and domestic
interest rates through FX sooq interventions on the foreign exchange sooq (Schating, 2009:
530). The duty to assist the Department of Financial Surveillance in handling capital control
is then assigned to local authorized dealers such as large commercial banks and currency
trading firms.

The Nairobi stock exchange

In 1951, the first professional stock broking company was founded by an estate agent, Francis
Drummond, who proposed to the finance minister of Kenya at the time, Sir Ernest Vasey, the
formation of a stock exchange in the East African region. In July 1953, after considering the
proposal of Kenya's then finance minister, Sir Ernest Vasey, and Francis Drummond, the
officials of the London Stock Exchange allowed the Nairobi Securities Exchange to be
established as a stock sooq overseas (Ngugi, 2003). As a result, the Nairobi Stock Exchange
(NSE) was formally established as a professional stockbroker association registered under the
Societies Act in 1954.Only resident European groups were permitted to trade in shares,
however, while Africans and Asians were not allowed to trade in shares. The slump in stock
sooq activity came with the confusion about Kenya's future at the dawn of independence,
though three years of stability and economic growth reassured investors about the sooq and
the exchange managed a number of highly over-subscribed public issues. 1972's oil
calamity brought inflationary pressures to the fiscal, effectively squeezing share prices and
halt production. In addition, the implementation of a capital gains tax of 35 percent in 1975
further undermined the currency, which also lost its regional character following
nationalizations, exchange controls and other inter-territorial restrictions in neighbouring
Tanzania and Uganda (NSE, 2015). Years later, as the Kenyan government recognized the
need for policy reforms aimed at promoting sustainable economic development with an
effective and stable financial system, the Capital sooq Authority (CMA) was established in
1989 as a regulatory body to help create an environment conducive to the growth and
development of the capital sooq of the state (ASEA, 2015). The exchange completed its
first privatization in 1988 when the Kenyan government's 20 percent stake in the Kenya

13
Commercial Bank (KCB) was successfully sold. After the incorporation of a private company
limited by shares under the Companies Act in 1991, the exchange switched from the "Call
Over" trading system to the "Open Outcry System" on the sooq. The NSE 20-Share Index
posted an all-record high of 5030 points on February 18, 1994, which led to the exchange
being listed by the International Finance Corporation (IFC) as the best-performing sooq in
the world with a return of 179 percent in terms of the US dollar. Six months later, the NSE
moved with a new computerized delivery system (DASS) to more spacious premises. After
this update, eight new stockbrokers were authorised, essentially increasing the number of
stockbrokers for the first time since the establishment of the NSE (NSE, 2015).In order to
boost international portfolio investments, the Kenyan government introduced a series of
incentives in 1995, including loosening exchange regulation for domestically operated
companies by doubling the aggregate threshold from 20% to 40% and the individual
threshold from 2.5% to 5% (NSE, 2015).However, while listed securities are exempt from
stamp duty, capital gains tax and value added tax, dividend withholding tax is only 5% for
residents and 10% for non-residents.
Given all the challenges facing the stock exchange, it is important to note that local investors
are paying more attention to it. In addition, the ratio of domestic investors to the total number
of investors improved significantly between 2009 and 2014, with more than 65 percent of the
investment coming from domestic investors, while in 2009, more than 50 percent of the share
ownership on the sooq belonged to foreign investors (ASEA, 2014). Relative to
corporations, the sector is still unpopular with individual investors. More than 80% of
institutional participants were companies in 2014 (ASEA, 2014).

The Nigeria Stock Exchange

Founded as the Lagos Stock Exchange in 1960, the Nigerian Stock Exchange obtained its
new appellation in December 1977 and expanded its scope to the state's major commercial
centres, with a total of six branches in Nigeria (Nigeria Stock Exchange, 2015). With an
initial number of 19 listed shares, the stock exchange began operating as a limited by
guarantee registered company in 1961. Licensed under the Investment and Securities Act
(ISA) and Nigeria's Securities and Exchange Commission (SEC), the Nigeria Stock
Exchange is committed to upholding the highest international standards in all its interactions
with its stakeholders. For this reason, the Nigeria Stock Exchange is a member of
organizations such as the World Federation of Exchanges (WFE), of which it is a founding
member, the International Organization of Securities Commissions (IOSCO), the Inter sooq
Surveillance Group (ISG), the Financial Information Services Division (FISD), the
Coordinating Committee for Financial Services Regulation (FSRCC) of Nigeria, and
sustainable Stock Exchange (SSE). In addition, the Nigeria Stock Exchange created the
African Securities Exchange Association (ASEA) in 1993, along with other African
exchanges, and is part of its Executive Committee (Nigeria Stock Exchange, 2015).
In November 1996, the exchange introduced an Internet system called CAPNET with the
goal of tackling the challenges of defining itself at an international level and achieving a
superior service delivery (NSEPro, 2015). In April 1999, the Involuntary Trading System was
introduced as a replacement for the open outcry trading process. This new system reflects a
safe trading mechanism through which the trades of the stock sooq are made through a
computer network that automatically runs online. The settlement performance on the
transactions of the business was then increased from T+2 weeks to T+3 days. In addition, the
Central securities clearance network Plc provides electronic sorting, settlement and
distribution services, as well as custodian services. (CSCS), an exchange subsidiary founded
in 1992 (Osaze, 2011). The Nigeria Stock Exchange All Share Index broke its all-time record

14
and reached the 10,000-point mark in May 2001, closing the month at 10,153.8 (Osaze,
2011). As of March 2016, with a total sooq capitalization of USD 80.16 billion, 184 listed
companies and 261 listed stocks, the exchange remains committed to meeting the needs of its
stakeholders and striving for the highest level of competitiveness by keeping up with sooq
trends. It is also dedicated to keeping its operations equal, its sooqs open and orderly in
order to connect the best of African business with local and global investor communities
(Nigeria Stock Exchange, 2015). The issuing of houses and stock brokers have been tasked
with deciding the price of new issues since the capital sooq reform in 1993, whereas only
stockbrokers are responsible for secondary sooq prices. The rates are published regularly on
a number of platforms such as the CAPNET exchange intranet service, the Stock Exchange
Regularly Official List, and some newspapers. The SEC, the exchange's highest regulatory
body, has the exchange supervisory order to discourage infringements of sooq rules and to
identify and dissuade any unfair trade practice. It was therefore entrusted with the dual duty
of regulating the sooq in order to protect the interests of investors and to improve the
efficiency of the capital sooq by means of growth (SEC, 2016). Legislation to restrict the
influx of foreign capital into the state was scrapped in an attempt to attract foreign funds to
Nigeria. As a result, international brokers were allowed to register on the exchange as dealers
and the sooq is open to all investors regardless of their nationalities. In turn, the involvement
of foreign investors in the Nigerian stock surpassed domestic transactions until 2014.
Nevertheless, in 2015, due to the drop in crude oil prices that had a significant impact on
Nigeria's earnings, the Central Bank of Nigeria (CBN) imposed restrictions on foreign
exchange controls. Such measures have been taken to alleviate the pressure on the foreign
reserves of the state and to protect the local currency.

1.4 Sooq linkage and correlations

Regional trade

International trade conferences are formerly subjugated by trade war rigidities, but the
continent of Africa is moving in the opposite direction. At an unprecedented African Union
Summit on March 21, 2018, leaders of a large number of African countries signed the
African Continental Free Trade Agreement (AFCFTA) in Kigali after two years of
negotiations. The African Union initiated the AFCFTA operational process at an
Extraordinary Summit of Heads of State and Government in Niamey, Niger, on July 7th 2019.
AUC Chairman Mr Moussa Fakir Mahamat hailed the upcoming launch as an "important"
and "historic" achievement. With the start of the operational process from July 2019, traders
athwart Africa will be able to take advantage of the preferential trading arrangements
provided by the AFCFTA, recognizing that trade transactions are between Member States
that have deposited the instruments of ratification and those that comply with the provisions
on rules of origin regulating AFCFTA trade.
Looking at a wealth of increasing stalemates athwart sub-Saharan Africa and portrayal on
bilateral trade statistics from the IMF, our recent work indicates that this is the latter. Today
the subcontinent is much more integrated than in the past. Some may be dazed, but the level
of integration in sub-Saharan Africa is in fact comparable to that in other developed and
emerging sooq economies in the world (see figure 1). This can have both positive and
negative impact among the countries associated in trade. On the positive side, closer

15
economic ties between countries result in spill overs of growth as rapidly growing large
economies pull together with them. Further interconnection on the negative side will expose
small economies to the recessions of their partners. This is borne out by the facts: Sub-
Saharan Africa witnessed the downside of globalization in 2015 after nearly two decades of
strong economic development. The crash of commodity prices and the stagnation of
economic activity in the region's largest economies, Nigeria and South Africa, led to the
deceleration of sub-Saharan African development to a low of more than 20 years.

Figure1

It is possible to observe regional trade linkages by analysing the amount of exports and
imports between the countries in the region. Looking at the rates of South African exports to
African countries as a percentage of GDP, it can be seen that Nigeria and Kenya have grown
to be the key recipients of the majority of South African exports to Africa between 2002 and
2009. There is therefore a chance that both Kenya and Nigeria's stock sooqs will be related
to the South African stock sooq (Kambadza and Chinzara, 2012). South Africa's exports to
Mauritius, which between 2000 and 2002 was the destination of most of SA's exports, have
declined. But other African countries including Botswana, Namibia, and Mozambique are
now Africa's top three trading partners (UN, 2014). This can be demonstrated by the
juxtaposition as well as the existing state-signed trade agreements. In exchange, as Nigeria's
10th export trading partner, South Africa was listed 3.3 percent of Nigeria's exports in 2013
(UN, 2014). As a state and part of WAEMU, Cote d'Ivoire was Nigeria's 13th export trading
partner, earning 1.83% of its exports in 2013. In addition, Nigeria, South Africa, Ghana and
Gabon were the prime African trading cronies of the WAEMU countries in 2013, earning
9.6%, 9.1%, 9% and 4.2% of their exports, respectively (WAEMU, 2014).
In terms of imports, Nigeria was the seventh trading cronies of South Africa in 2013, with a
share of 3.5 percent of total imports coming from Nigeria; while South Africa was the 11th
trading cronies of Nigeria, with a share of about two percent of total imports coming from
South Africa (UN, 2014). In addition, 5.01% of Kenya's imports came from its fifth trading
partner, South Africa. Nigeria (12.3%), Ghana (2.1%), Angola (1.7%) and South Africa
(1.5%) were the main trading partners in the WAEMU region in 2013 (WAEMU, 2014).

16
Outside the continent, the United States and the United Kingdom are always among the top
five trading partners of most African economies, while China and Sub-Saharan Africa are
building a stronger trading bond. For example, in 2013, the US was the WAEMU zone's
fourth non-African export trading cronies with a 4.7 percent share, and the third with a 5.7
percent share in imports (WAEMU, 2014). In the same year, imports from the United
Kingdom represented 1.4 percent of total imports into the Union. Likewise, 6.27% and 7.88%
of Kenya's exports were provided by the United States and the United Kingdom. The United
States is Nigeria's main trading partner, earning about 17% of its exports and 14% of its
imports in 2013; while the United Kingdom is ranked fifth with 6.32% of exports and 6.58%
of imports in the same year. The same applies to South Africa, which received 6.35% of its
imports and sent 7.24% of its exports to the United States.
MTN, the telecommunications company, is a well-known example of exporting ITC services
to South Africa. As of December 2015, the MTN group, which ranks sixth on the JSE, has
operations in 17 African countries including Nigeria, Benin, Cote d'Ivoire, Guinea-Bissau
and Kenya (MTN, 2015). On the retail side, with 336 corporate and 39 franchise stores in 14
African countries including Nigeria (excluding South Africa), Shoprite was the first to
succeed in establishing itself on the continent. The business employed 21,000 people outside
of South Africa as at June 2016 (Shoprite, 2016). Certain retailers including Pick n Pay,
Woolworths, and Massmart are working to expand their footprints in Africa as well.
According to Dihel, Fernandes, Gicho, Kashangaki and Strychacz (2011), several world-class
Kenyan companies provide and export higher-value offshore services such as R&D business
ventures, product development and transformation sourcing. A number of Kenyan
accountants have IFRS expertise and experience as one of the first countries to adopt the
International Financial Reporting Standards (IFRS). This is an important export opportunity
for Kenyan companies and accountants who frequently travel to provide services in countries
that have recently adopted IFRS and have a shortage of IRFS professionals who are skilled
and experienced. Kenya also has a host of success stories with companies like KenCall,
Ushahidi and Safari.com in the export of ICT services. Nonetheless, Kenyan professional
service firms ' outflow is dominantly aimed at the Eastern African Community (EAC)
regional sooqs. South African consumers have only one-fifth of Kenyan service exporters,
while more than half have customers in Tanzania and/or Uganda. Nearly a quarter of
customers in Sudan and other European countries than the United Kingdom. The UK and the
US are the major sooqs in the BPO industry for Kenyan exporters (Dihel et al., 2011).
In WAEMU, service exports consist of three main components, namely transportation, travel
and other services that differ in value from state to state (BCEAO, 2014). Tourist operation
(travel) is the primary source of income from the Union's export services and is largely
technical (business, conferences) and personal (recreation, culture and others). Due to the
renewed interest in tourism, especially in Burkina Faso, Mali and Senegal, these revenues
have seen their share increase over the years. With regard to their historical and cultural
heritage and geographical locations, these countries in the Union offer many possibilities.
There are many tours on offer and the WAEMU countries routes have changed. Increasingly,
major cultural activities are planned. Business tourism is also booming in most of these
countries because of increased investment opportunities in the mining and oil fields
(BCEAO, 2014). In the transport sector, services provided to foreign ship-owners and, to a
lesser extent, to land transport owners, primarily provided to citizens of African countries, are
the main source of revenue for WAEMU countries transportation services. Abidjan's
autonomous port (PAA) is the largest container port in West Africa and the busiest port in
West Africa. It also supports the WAEMU landlocked countries for importing and exporting
their goods, such as Mali, Burkina Faso and Niger.

17
Senegal is one of the major service exporters to the rest of Sub-Saharan Africa in the ITC and
BPO sectors. The state runs software development and deployment services, web services,
data processing and storage services, business intelligence and data warehousing integration
of enterprise applications, corporate security, application software and system integration
services (Doumbouya, Ndiaye and Primack,2015) with companies such as ARC
Informatique, Finetech, 2SI and GSIE, among others. In 2012, between 70 percent and 90
percent of the revenues of these companies were derived from export activities and their main
customer base is located mainly in sub-Saharan Africa, particularly in West and Central
Africa. However, Sonatel, Senegal's largest telecommunications company, is involved in
building fibre optics networks in Africa. The company is a co-owner of several submarine
fibre optic cables worldwide and is the biggest participant in the ACE network, a 17,000 km
long cable with 22 submarine stations linking 23 countries, including 16 African countries
(Doumbouya et al., 2015: 178). Therefore, the presence of these trade links between countries
implies that the other could be impacted by a shock on one sector. There is therefore a
possibility of connecting the different stock sooqs.

FINANCIAL LINKAGE

This part will concentrate on aggregate financial flows in the region due to the lack of data on
the specific direction of FDI flows among African countries.
Nigeria has reported the highest net portfolio equity inflow since 2008 in 2012, while the
other countries have registered very low or negative net inflows. This indicates that the
capital sooq in Nigeria had a greater interest that year relative to the capital sooqs in the
other countries being listed. The low net portfolio equity inflows in Kenya and the WAEMU
region suggest that these countries and the rest of the world have only weak financial ties.
Nonetheless, there are stronger financial ties between Nigeria and South Africa and the rest
of the world. Interestingly, the degree of financial connections between countries can also be
analysed through the presence among them of exports of financial services. Nigeria is one of
Africa's effective ex-bank service providers. External reserves of Nigerian banks (proxy for
banking service exporters) increased substantially from N250 million in 1980 to N1 702 513
million in 2011 (Chaitoo and Bankole, 2015: 70). As of 2012, 11 of its 20 banks operated in
other African countries, with Ecobank Nigeria operating in 35 other African countries,
including all eight WAEMU countries, as well as Kenya and South Africa. The United Bank
for Africa (UBA), with its presence in 19 countries including Benin, Cote d'Ivoire, Mali,
Senegal and Kenya, also has a large footprint on the continent (Chaitoo and Bankole, 2015:
100-101). It has been identified as one of Africa's fastest growing banks and has also recently
been listed with the Pan African bank. In addition, eight Nigerian banks, including London,
Paris, New York, Dublin, Hong Kong and mainland China, also had international operations
outside Africa. During 2012, the private corporate sector during South Africa made far more
new project projects in Africa compared to the state-owned companies. The companies that
invest most heavily in new projects in the financial sector in the rest of Africa are institutions
such as Standard Bank, First Rand, Sanlam and Liberty Life (Holmes, 2013). Standard Bank
has Africa's largest bank presence with operations in twenty countries, including Nigeria,
Kenya, and Cote d'Ivoire. By cutting its operations in other developing sooqs such as Latin
America, it is consolidating its focus on the continent. The other retail banks, however, have
entered the sooq share race. This is the case with Absa, who invested R 18 billion in 2012
buying up his parent company's Africa firm, Barclays, which has a presence in 14 countries
including Kenya and Nigeria (Holmes, 2013). First Rand started operations in Ghana in
addition to Absa, and its investment banking subsidiary, RMB, has a presence in Nigeria. In

18
Ecobank, too, Nedbank took a 20 percent stake. First Rand is one of South Africa's biggest
financial institutions. The company provides retail, business, corporate and public sector
clients with banking, insurance and investment products and services (First Rand, 2016). In
addition, the Sanlam Group, another of South Africa's largest financial services companies,
has the highest pan-African insurance group presence based on the number of countries and
exposure to the combined sector as a whole. It is present in 11 African countries, including
Kenya and Nigeria, as well as in some developed sooqs in Malaysia, India and with small
businesses (Sanlam, 2015).

1.5 Problem statement

The good performance of a stock sooq is essential part for the welfare of any fiscal, because
it’s a place where most companies and the government raised their capital in order to conduct
important project. The stock exchange in sub Saharan Africa have encountered many
challenges in the past coming from internal mismanagement to international influence such as
the calamity encountered by the developed state. So, it’s essential to conduct a research
about some key sooqs in order to observe the performance of the sooq and their
interdependence.

Research gap

In recent studies, most of the researches were about the aggregate sooq performance of sub
Saharan fiscal. In our study, we will take the index of the BRVM as a dependent variable, and
independent variables will be coming from the indexes of 3 selected stock sooq in sub
Saharan Africa which are the JSE, the NGSE and the NSE. Trough literature review we
found explanation that sooq can be correlated and affect each other performance, also that
movement of prices of key indexes can influence the sooq.

Research questions

 How does the two main index of the BRVM are related to each other?
 How does the BRVM related to the others stock sooq (Nigerian stock exchange,
Johannesburg stock exchange and Nairobi stock exchange)?
 How does the 2008 calamity impact the sub Saharan stock sooq?

Hypothesis

H1: There is a correlation among the two indexes of the BRVM stock sooq.
H2: There is a correlation among the four selected stock exchange.
H3: The 2008 calamity had an impact on the four selected stock sooq.

Objectives

The objectives of my research will be:

 The evaluation of the indexes of the BRVM stock sooq.

19
  The remark of the correlation among the four selected sooqs.
 The remark of the impact of the 2008 calamity on the four selected sooqs.

Relevance of the study

Even if there are already some researches about whether the African sooqs are correlated,
this study aims at contributing to the already existing literature. This study will focus on
whether African stock sooqs are correlated, and how does the 2008 calamity impact the
stock sooq. Therefore, an inquiry into the stock sooq could help to increase some investor
belief by attracting more capital inflow in the region.

Chapters outline.

In chapter 2 literature reviews on stock sooq studies

In chapter 3, data and methodology are discussed
In chapter 4, empirical results are presented with graphs and descriptive statistics
In chapter 5, conclusion and discussion

Chapter 2

LITERATURE REVIEW

Anglo-Saxon lexicon is relevant in its designation of the IPO: becoming public,

"going public". The company is moving from a private "shadow" exercise to a "light" public

20
exercise. In order to achieve this transition, the company must carry out a set of reforms to
encounter sooq requirements: legal and financial restructuring, internal reorganization and an
internal and external communication policy, [Pilverdier-Latreyte 1997]. The IPO therefore
appears to be a process which generates direct and indirect costs [Ritter, 1987] for the
applicant company. Why then does a company decide to go public that is to say to make this
change of status? For such an important question, very few studies have been devoted to this
subject; so, until the early 1980s, the decision to go public was seen as a simple step in the
life of the company, [Zingales, 1995]. Subsequently, the studies which have been interested
in the question have for the most part analysed a particular aspect of the advantages (Rajan
1992; Holmström and Tirole 1993; Pagano and Röel 1998…) and the constraints (Ritter
1987; Chemmanur and Fulghieri 1995, Yosha 1995…) of the IPO. However, quite recently
some authors have developed explanatory theories of the IPO decision, combining several
factors that fill relatively the theoretical void on the subject (Pagano, Panetta and Zingales
1998; Jaffeux 1992). In addition, once the company is listed, certain phenomena relating to
its performance are observed in the short, medium and long term: undervaluation and
underperformance. These phenomena are associated with the IPO; therefore, they broaden the
scope of the IPO literature. The IPO opens up multiple perspectives for original shareholders
and the candidate company, [Jacquillat (1994), Jobard (1996) and, Grinblatt and Titman
(1998)]. The distinction between original shareholders and business is made explicitly for the
sake of clarity. Otherwise, at the start of the process, original shareholders and companies are
generally one entity. For original shareholders, the IPO ensures the liquidity of the monies,
the diversification, the sustainability of their business and the possibility of realizing capital
gains.The IPO is a way to easily disengage from property, (liquidity of monies), [Jacquillat
(1994); Jobard (1996) and, Grinblatt and Titman (1998)]. Indeed for a listed company, the
share prices, as well as the conditions of transactions on the securities, are known and fixed
on the stock exchange. So that shareholders who wish to sell part or all of their monies are
spared from looking for potential buyers, defining a value for the securities, conscripting
contracts relating to the transaction and, above all, long waiting period, before the end of the
operation. On the other hand, for an unlisted company, the room for manoeuvre is lower. In
fact, the shareholder, in this case, may not transfer his shares or shares, in whole or in part
and under clearly defined price conditions and within very short deadlines, only to the
original shareholders or to investors Chartered. By listing their companies, shareholders have
more ease in acquiring liquidity. Diversification for the original owner in the case of family
businesses or companies with a main majority shareholder, in particular, the IPO opens up the
possibility of risk diversification for this entrepreneur. By allowing new shareholders to enter
the capital of his business, he ceases to bear business risk alone. At the same time, the
entrepreneur releases a part of his commitments, which he can devote to other activities or to
the acquisition of securities from other companies. Thus, the original owner diversifies his
business risk, [Grin blatt and Titman (1998)]. The IPO is synonymous with the sustainability
of his company even if it involves the risk of losing control of the business, by diluting
capital or by a hostile takeover bid. By listing his business, inheritance tax problems can be
resolved without affecting the life of the business, because it is enough to sell the securities to
external shareholders who will be responsible for continuing the business if the heirs no
longer want the case, [Jacquillat (1994) and Jobard (1996)].The prices of securities are
continuously known on the stock sooq. Shareholders can then take advantage of periods of
sooq upturn to sell all or part of their shares. They can thus make capital gains on the sale of
their property titles. Such an opportunity is only available to shareholders of listed
companies, [Jacquillat (1994) and Jobard (1996)]. There are also many benefits for the
company: better access to the capital sooq, the possibility of financing external growth,

21
improving the company's credibility, disseminating information and monitoring business. The
advantage of the most frequently mentioned initial public offering is that of access to new
sources of financing. The listed company mainly diversifies its sources of funding. By
diversifying its sources of financing, the company increases its negotiating power toward
banks or certain credit organizations, which in turn can provide it with capital at lower costs.
At the same time, in an environment where optional financial products or, mezzanine debt
(bonds convertible into shares or redeemable into shares and variable-rate bonds, etc.), are
restricted to listed companies only, the IPO also presents the advantage of the diversification
of the types of financing, [Jacquillat 1994 and Jobard 1996]. Thus, the listed company can
access products such as convertible bonds with warrants or redeemable in shares, which make
it possible to reconcile conflicting objectives between shareholders and managers. Finally,
the variable rate bond which allows the company to hedge against interest rate fluctuations
(synonymous with an increase in the cost of capital for the company) can be a recourse for
the listed company [Jacquillat 1994 and Jobard 1996]. The IPO also offers the company the
advantage of being able to finance growth, without necessarily generating large outflows of
money. In the event of a merger or absorption a listed company can limit its outflow of
money by carrying out a securities exchange transaction, [Jacquillat 1994 and Jobard 1996].
An advantage for the company that goes public is also the increase in its notoriety. Indeed, it
is under the "spotlight" of financial news, therefore increasing the reputation of the company
and strengthening its image with its partners (suppliers, customers and bankers etc.),
[Jacquillat (1994) , Jobard (1996) and, Grinblatt and Titman (1998)].
The sooq reveals information and monitors the company. The company that goes on the
stock sooq is subject to permanent constraints of dissemination of information on the state of
the company, this increases the information available on the stock sooq and in the
courtyards. Thus the stock prices will give an idea on the present and future performances of
the company, anything which allows appreciating the quality of management of the
companies, [Grinblatt and Titman (1998)].However, it is not only these only actors who
derive benefits: there are also the employees of the company who acquire a certain notoriety
of the rating [Grimblatt and Titman 1998]. In addition, the entrepreneur can easily interest
them in the capital of the enterprise [Jacquillat 1994]; or even use compensation schemes
combining share prices to motivate managers. Despite these many benefits of the IPO there
are also constraints to "going public". These constraints can be seen as disadvantages of the
IPO. The constraints most often mentioned are due on the one hand to the costs linked to the
IPO and, on the other hand to the costs and consequences linked to the presence on the
listing. There are four (4) possible sources of costs linked on the IPO: the costs prior to the
transaction, the costs directly linked to the IPO in the strict sense, the costs of undervaluing
securities at the IPO and the costs after the IPO, [Barbaret 1990].
 The IPO entails a legal and structural restructuring for the candidate company which aims to
resolve the problems linked to capital and to clarify relations with the group's subsidiaries, in
order to comply with certain sooq provisions. Some companies are therefore obliged to
modify their capital in order to have a greater number of shares, to open their capital or even
to change their legal form. Certain statutory clauses are often revised because they are
incompatible with the introduction. This is particularly the approval clauses of new
shareholders, majority pacts or collection rights, etc., [Pilverdier-Latreyte 1997]. The use of
specialists and the convening of general shareholders' meetings are essential for the success
of this stage of the introduction.
 The costs directly linked to the introduction can be distinguished at two (2) levels: internal
level and external level. Internally, the business needs to adapt, and this requires extensive
internal communication and organizational reforms, particularly improvements in accounting

22
and financial services. Indeed, an explanation campaign for staff is essential, to the detriment
of the activity of the company, which can lead to a possible drop in turnover. In addition, the
accounting improvements required for greater transparency effectively impose good quality
of information. This often leads the company to resort to financial advisers or accounting
firms to compensate for the shortcomings of its internal organization. Externally, the costs
have two (2) origins: communication and the remuneration of the financial intermediaries
associated with the introduction. Communication is essential, it is initially oriented towards
the dissemination of more detailed information about the company. Various media are
essential: interviews, press conferences, media campaigns and flyers etc. In some countries,
particularly in the WAEMU zone, the appointment of an information adviser is one of the
obligations imposed by the stock sooq authorities. As for the remuneration of financial
intermediaries (banks and brokerage firms), it relates to the services they offer to the
company throughout the IPO. These intermediaries not only support the company with
advice, but engage their responsibility by giving their “due diligence” discharge on the
quality of the company by participating in the determination of the value of the company and
the offer price and , in some cases buy the company's securities to replace them on the day of
introduction (pre-placement procedure). Consequently, the company, for all these services
rendered, pays the financial intermediaries.
 The undervaluation of securities at the introduction is a difference between the first listed
price and the offer price. It contributes to the decrease in the value of the company by at least
the portion of the securities sold during the introduction, therefore constitutes an implicit cost
element of the introduction, [Ritter 1987]. We return to the next section on the extent and
explanation of this phenomenon.
Overall, the IPO operation is demanding, restrictive and costly for candidate companies.
However, once the company is listed, it incurs other types of costs and is subject to the laws
of the sooq: these are the consequences of being listed on the stock sooq.
The listed company has unlimited access to public savings; Consequently, so that public
savings are not squandered and used for non-economic purposes, the stock sooq authorities
subject the company to constraints of regular publication of information and of disclosure of
all information likely to affect the monies. In addition, the listed company is requested to
participate in the financial organization of the sooq and, in certain cases, by the authorities,
to contribute to the liquidity of the stock sooq; this creates costs for the listed company.
Finally, the risk of losing control of his business, as well as the obligation to deal with new
shareholders, are permanent facts for the entrepreneur who goes on the stock sooq.
 As soon as a company is listed, it must keep the public regularly informed of its situation and
of any decision that may affect the monies. This obligation of transparency vis-à-vis the
sooq is a costly constraint financially and strategically for the company. Financially, the
company must bear the fees for account certifications and publications in the official
quotation bulletin. Strategically, all sensitive information on its situation and its future is
revealed to the public and particularly to its competitors, [Grimblatt and Titman 1998]. When
the company also occasionally wishes to make a public offering, it is subject to information
constraints relating to the use of capital; these are all provisions that generate costs, but
necessary to guarantee the safety of savers. Listed companies bear the costs of being listed on
all sooqs: securities holding and brokerage fees, for example. In addition, on certain sooqs,
the stock exchange authorities add to the conditions of initial public offering the obligation to
sign a liquidity contract for the animation of the listed security and, more generally, the sooq
liquidity. In the WAEMU zone, this contract is strictly compulsory for all the BRVM
compartments. One of the risks for the entrepreneur who goes on the stock sooq, most often

23
advanced, is the loss of control of the business by its former owners, relative to the opening
of capital and the liquidity of the company's heritage. Jacquillat 1994, Jobard 1996 and
Grimblatt and Titman 1998]. In addition, the company is obliged to devote part of its time, to
the management of the course, because it reflects the judgment of the public with regard to
the company. A negative appreciation is synonymous with falling prices and therefore easily
with buyout of the company, resulting in a loss of control.
Having the company listed requires more attention from the shareholders, [Jobard 1996]. This
necessarily involves defining a dividend policy and setting up a shareholder relations
department.

As shown by Feridun (2004), the literature on financial calamity is classified into three
models namely first-generation models, second-generation models and third-generation
models. The first generation model Krugman (1979), Flood and Garber (1984) explains that
“a government with continual money-financed budget deficits is believed to use a restricted
stock of reserves to peg its exchange rate and the attempts of investors to anticipate the
inevitable collapse generates a speculative attack on the currency when reserves fall to some
critical level”.
The Importance of investor’s beliefs was highlighted in the second generation model,
Obstfeld (1994) (1996), Radelet and Sachs (1998) Ozkan and Sutherland (1995) all agreed
that “policy is less mechanical: a government decides whether or not to defend a pegged
exchange rate by making a trade-off between short-run macroeconomic flexibility and
longer-term credibility”. The calamity then starts from the fact that defending parity is more
expensive as it requires higher
interest rates. Should the sooq believe that the defence will ultimately fail, a speculative
attack on a currency develops either as a result of a predicted future deterioration in macro
fundamentals, or purely through self-fulfilling prediction (Vlaar, 2000).
The third-generation model which came about in the 1990’s after the Mexican tequila
calamity of 1994 and the Asian calamity of 1997. Dooley (1997) Krugman (1998)
Redelete and Sachs (1998) classified it into three different groups which are moral hazard,
herd behaviour and contagion. Moral hazard emphasises mainly on “liquidity shocks” as an
explanation of financial calamity. Herd behaviour which was developed by Banerjee (1992)
and Bikhchandani et al (1992) complements the logic in the second-generation models by
illustrating a mechanism where large expectation shift occurs due to a small injection of new,
possibly wrong information. This theory leads to an emphasis on the informational
transparency in sooqs to prevent financial calamity. The contagion model comes in a
variety of theoretical forms and has been subjected to a large amount of empirical testing and
scrutiny. Contagion is “the cross- state transmission of shocks or the general cross- state
spill over effects”. Contagion can take place both during "good" times and "bad" times. Then,
contagion does not need to be related to crises. However, contagion has been emphasized
during calamity times.
The recent efforts at developing an early warning system for a looming financial calamity
have taken the form of two related approaches which are profit/logit model or signalling
model. The profit/logit model was pioneered by Frankel and Rose (1996), they used limited
dependent variable models known as profit or logit regressions to identify the causes of
calamity and to predict future calamity. The signals approach was developed by Kaminsky
et al (1998), and it consists of a bilateral model where a set of high frequency economic
variables during a specified period is compared, one at a time with a calamity index so that

24
when one of these variables deviates from its normal level beyond a specific threshold value
prior to a calamity it issues binary signals for a possible currency calamity.
The statement that sooq prices instantaneously and fully reflect all relevant available
information is known as the efficient sooq hypothesis. Fama (1970) provided an operational
base for testing sooq efficiency by distinguishing between three types of efficiency: weak-
form efficiency, semi-strong-form efficiency and strong-form efficiency. According to Fama
(1970): “A sooq is said to be weak-form efficient if the current prices of securities instantly
and fully reflect all information of the past history of security prices. A sooq is said to be
semi-strong-form efficient if the current prices of the securities instantly and fully reflect all
publicly available information. A sooq is said to be strong-form efficient if the current price
of securities instantly and fully reflects all information, both public and private”.
Barberis, Shleifer, and Wurgler (2005) distinguish between three theories of co-movement in
return, namely co-movement based on fundamentals, co-movement based on categories, and
co-movement based on habitat. The fiscal assumes a perfectly elastic supply of a riskless
asset with a zero return rate, as well as a fixed supply of risky monies denoted as 2n, in all
three models. The co-movements in fundamental values are the basis for co-movement in
prices, according to the fundamental view, which is the more traditional view. This view is
derived from frictionless sooqs of reasonable investors where prices directly represent the
sufficient risk-adjusted discounted sum of the rationally expected cash flows of an asset (s et
al., 2005: 1). The presence of "fundamental traders" who have a Constant Absolute Risk
Aversion (CARA) utility over the value of their accumulated capital in the ensuing period
and who also assume that price changes are normally distributed shoots from the belief of
rational investors. The basic view then implies that correlation in returns arises as a result of
correlated changes in rationally anticipated cash flows or correlated changes in rationally
applied discount rates. In addition, the cause of associated discount rates may be news about
interest rates or risk aversion, impacting all discount rates at the same time. The latter may
also arise because of associated shifts in the objective understanding of the value of monies
by investors (Barberis et al., 2005: 1). Nevertheless, the discount rate is also considered
constant with the expectation of a constant risk-free rate, the constant risk tolerance of
investors and their constant perception of risk. Therefore, the co-movement that is reflected
in the return co-movement in news about fundamental values is simply the co-movement in
news about future cash flow.
Barberis et al. (2005: 7) then concluded that the basic view would describe cases of specific
return factors, such as strong sooq and business factors, conveniently. In cash flow news, the
presence of these factors could be partly the result of conditions at the business and sector
level. This fundamental theory is close to the standard textbook theory of long-term stock
price fluctuations, which stipulates that stock prices are determined by projected actual
dividends at a constant discount rate (Engsted and Tanggaard, 2004: 1). That is, current stock
prices are equal to the expected future earnings ' present discounted value. Nevertheless, this
simple present value model, based on annual data collected over many decades, poses
limitations due to the absence of a discount rate theory. In addition, because discount rates do
not remain constant over time, this time variance has not been adequately explained by the
standard models in finance theory (Engsted and Tanggaard, 2004: 1). Most model
experiments using a constant discount rate have been dismissed as most general equilibrium
models require changes in discount rates and discount rates are supposed to rely on a number
of macroeconomic variables (Pindyck and Rotemberg, 1993: 1073). Hence Pindyck and
Rotemberg (1993: 1073) clarify that all current value models in which discount rates depend
solely on macroeconomic variables generally suggest that different stock prices can only shift
together as a response to common earnings movements or as a reaction to common effects of

25
changes in current or expected future macroeconomic conditions. Therefore, if the earnings
of companies are uncorrelated due to unrelated industries, their stock prices will move only
together in the event of changes in current or expected future macroeconomic conditions.
Pindyck and Rotemberg (1993), however, rejected this hypothesis that troupes doubt on the
significant distributional effects of macroeconomic variables. We concluded that following
the hypothesis that stock price co-movement occurs as a result of segmentation of the sooq
and the presence of large group sentiments is more valid.
The second hypothesis discussed by Barberis et al. (2005), the category-based co-movement,
implies that co-movement is defined not only by the fundamentals, but also by the patterns of
trading of investors. More precisely, the authors argue that investment in terms of categories
is drawn to investors. This is particularly true for institutional investors who, when making
portfolio allocation, are bound as fiduciaries by formal laws.
Therefore, monies are first classified into categories based on some characteristics in that
phase, and funds are distributed by categories rather than individual securities. Some
common category examples include stocks from the oil industry, large stocks, small-cap
stocks, value stocks, growth stocks, and junk bonds. The investment process is streamlined
by allocating funds in this way and a clear way of measuring portfolio managers ' efficiency
is given (Barberis et al., 2005: 7). One conclusion of the model is that with associated views,
some of these investors may be noise traders. A change in feeling will lead them to redeploy
the funds between the different categories. If prices are influenced by their trading, this
reallocation of funds between categories can generate common factors in the returns of
monies of the same category, even if there is no connection between the cash flows of these
monies. (Barberis et al., 2005: 8). The authors considered two categories called X and Y to
explicitly explain this concept, with risky monies 1 through n belonging to category X and
risky monies n+1 through 2n belonging to category Y. Our statistical deductions indicate that,
simply because these stocks are in the same category, the returns of a group of stocks may
have a common factor. In fact, after noise traders experience β∆u X, t+1 (i.e. a positive
feeling shock about category X), the latter will increase their investments in all category X
stocks. This will result in a simultaneous rise in the prices of all X-owned properties. In
addition, there is another less obvious reason for the impact on returns on all stocks of the
optimistic sentiment shock ∆u X, t+1. Assume that stock prices in category Y are increasing
after the noise traders are that bullish about the stocks in that category. The response from
fundamental traders to overvaluation will be to short-sell securities in Y and purchase more
stocks in X in an effort to protect against negative basic news. Therefore, the sensation of
surprise around Y, ∆uY, t+1, is also transmitted to Category X securities (Barberis et al.,
2005: 10). Barberis et al. (2005: 11) describe three economic-specific predictions to find
evidence of category-based ascension. The first two predictions explain the outcome of
reclassifying risky asset j from category Y into category X1, assuming that there is a fixed
cash-flow covariance matrix as well as that the number of monies as n tends to be infinite.
With the following univariate regression in the case of the first prediction:
∆Pj,t = αj + βj∆PX,t + vj,t (1.1)
Where, ∆PX,t = 1 nΣl∈ X∆Pl,t . For example, a considerable decline in the sooq
capitalization of a large-cap stock may send it to the small-cap category. The reclassification
leads not only to an increase in the covariance of asset j with a return on category X (i.e. all-
inclusive, t), but also to an increase in the beta load on that return which is an OLS estimate
of βj. More broadly, the increase in beta is greater than the increase in cash-flow correlation
can be represented (Barberis et al., 2005: 11). For the second argument, the following
bivariate regression is used:
∆Pj,t = αj + βj,X∆PX,t + βj,Y ∆PY,t + vj,t, (1.2).

26
The reclassification results in an increase in the OLS parameter estimate of βj, X and a
decrease in the βj, Y. This prediction detects a potentially more effective test than the first,
concluding that the re-categorization of a stock from one category to the next is accompanied
by an increased sensitivity to the sentiment shock of the other category (i.e., ∆ uX, t). Once,
there must be either noise traders with similar demand functions for all monies within a group
or fundamental traders capable of offsetting their effects in order to hold the above proposals.
If not, the only determinant of return correlation will be the correlation in fundamental news,
and after reclassification the correlation structure of returns (i.e. βj and R2 in the first
proposition, and βj, X and βj, Y in the second proposition) will remain unchanged (Barberis
et al., 2005: 12).
Finally, the last category proposal indicates that, as the number of risky monies approaches
infinity, correlation(∆PX,t,∆PY,t) is lower in an fiscal (Barberis et al., 2005: 12) .When we
include the noise traders in the fiscal the imperfect correlated stocks is are added in the fiscal
and imperfect correlated shocks are added to the return of X and Y.
The habitat-based co-movement, which is the third hypothesis discussed by Barberis et al.
(2005), derives from the argument that due to restrictions on international trade, lack of
knowledge or transaction costs, a significant number of investors are only dealing with part
of all available stocks. Suppose, for example, that set X, including securities 1 through n, is
traded only by one group of investors known as habitat X; whereas setting Y, including
securities n+1 through 2n, is traded only by another group known as habitat Y investors. It is
important to note that X and Y do not refer to asset categories that some investors do not
differentiate between when redistributing their funds, contrary to the category-based view.
They denote asset groups that are held solely by certain investors. For example, Set X could
be viewed as U.S. stocks, and set Y as U.K. Stocks, with many investors limiting their trading
to domestic securities only in these countries. In case habitat X investors become more risk-
averse and subsequently decrease their position in all risky monies in their possession, co-
movement habitat theory argues that a common factor in securities returns will be generated
in set X (i.e. the primary holdings of habitat X investors). This will occur even if the
fundamental values of these risky monies are not correlated (Barberis et al., 2005: 13). While
demand functions for habitat investors are motivated differently from those in the view of co-
movement category, the price functions remain the same. This means that the three ideas (i.e.
one-to-three) outlined in the category-based theory would also hold for this fiscal, with X and
Y reflecting environments for investors rather than groups. In this scenario, Proposition One
would now be perceived as meaning that the inclusion of a stock in a certain category of
investors ' habitat would result in a higher degree of co-movement between that stock and the
other monies in that habitat. Notably, the habitat-based theory, similar to the category-based
theory, depends on arbitration limits. That is, even if they have identical cash flows, Habitat
X and Y will sell at different prices as only those securities are exchanged by some investors.
This will then open up potentially interesting prospects for unconstrained arbitrators.
Nevertheless, fundamental traders with short horizons in this model cannot exploit these
incentives effectively (Barberis et al., 2005: 13).
Interestingly, by using the New Open Fiscal Models (NEOM), pioneered by Obstfeld and
Rogoff (1995), Canto (2004) established a theoretical model to explain the connection
between stock sooq integration and the international transmission of shocks through
countries. The author is developing a NEOM that introduces international equity trading and
describes the role of international portfolio diversification in supply shocks transmission
(Canto, 2004: 9). This was the first attempt to introduce convergence of the stock sooq into
a theoretical NEOM.
Therefore, shares were included in this index scheme, as well as concave transaction costs on
international stock holdings, in an effort to model the integration of the stock sooq. The

27
simulated model predicts a positive correlation between domestic and foreign stock returns
when stock sooqs respond to supply shocks (Canto, 2004: 63). There is an involuntaryrise
in dividends paid by domestic stocks when there is a shock to home profitability, related to an
increase in domestic stock returns. The temporary increase in wealth experienced by
domestic agents subsequently informs their optimal decision to demand more foreign shares,
raise foreign share prices and returns, and signal positive international spill overs between
sooqs. This not only emphasizes the importance of supply shocks in trying to describe the
complex actions of international equity returns, but also reveals dividends and income as an
extra source of international shock transmission. Following the introduction of incomplete
incorporation of the international stock sooq into the model using adjustment costs, there is a
dramatic fall in correlations of international stock returns. Canto (2004) argues that, in the
case of imperfectly integrated sooqs, investors ' ability to make optimal decisions is limited
by the barriers to portfolio diversification and imperfect mobility of capital. In addition, it
will influence the complex response of variables to foreign spill overs and shocks in
technology. Obviously, the existing correlations of stock prices, stock returns and
consumption will decrease as a result of increasing transaction costs of investing in
international shares (Canto, 2004: 64). In addition, the new model suggests that the amount of
transaction cost of investing in the international portfolio decide the anticipated relationship
between foreign and domestic stock returns when incorporating different degrees of stock
sooq integration. This transaction cost also influences stock prices at the same time (Canto,
2004: 64). In addition, there is also a dramatic change in the length of the stock returns '
dynamic response to supply shocks when the model introduces initial asymmetric holdings of
foreign shares. Although it turns out that the effect of shocks on stock returns lasts longer, the
initial volume of foreign monies held does not determine the dynamic response of real
variables to supply shocks. Similarly, the initial level of foreign asset holdings is hardly a
determinant of the foreign stock holdings ' dynamic response; while the latter is heavily
dependent on the level of foreign sooq transaction costs (Canto, 2004: 64). This model faces
some drawbacks as the first attempt to introduce stock sooq integration within a NOEM
system. One of these limitations is the fact that capital accumulation is not considered by the
model. This limits the transmission mechanism's importance of stock sooqs.
Like Pin Dyck and Rotenberg (1993), the normative hypothesis of the simple present value
model was also dismissed by Engsted and Tanggaard (2004) and Barberis et al. (2005). The
Engsted and Tanggaard (2004) studied the co-movement of U.S. and UK stock sooqs by
breaking down stock return innovations in both countries into different news components (i.e.
dividend news, real interest rate news, and stock return news). To this end, they used
quarterly data from the U.S. and UK covering the period from 1918 to 1999. The news
components were then analysed to see how they travel together athwart countries using a
VAR-based variance disintegration. It was found that the main determinant of stock sooq
volatility in both the United States and the United Kingdom is the risk premia news (future
excess returns) and that this aspect is strongly cross- state linked, effectively explaining the
high degree of US and UK stock sooq co-movement (Engsted and Tanggaard, 2004).
Likewise, by explaining the gap between interdependence and contagion, Bonfiglioli and
Favero (2005) tried to explain the co-movements between US and German stock sooqs.
They examined the relative importance of contagion and interdependence within the context
of an explicit structural model, using cointegration analysis to distinguish long-term
equilibrium from short-run dynamics. A long-term equilibrium was built by testing
distinctive possible specifications and promoting the co-integration hypothesis between the
(log of) US earnings-price ratio and long-term interest rates (Bonfiglioli and Favero, 2005:

28
1313). The analysis did not reject the hypothesis that there was no long-term interdependence
between the US and the German sooqs. Therefore, as a reference reduced form, a Vector
Error Correction Model was used and a structural model was developed to determine the
relative significance of interdependence and contagion in the identification of the two sooqs
' short-run dynamics. The structural model showed that a non-linear specification reflects the
effect of U.S. stock sooq volatility on the German stock sooq. Although typical fluctuations
in the US exchange have virtually no impact on the German sooq, the impact on irregular
fluctuations is substantial and significant (Bonfiglioli and Favero, 2005: 1314). Canto (2004)
also explored the notion of contagion through the concept of the global element. The author
conducts an empirical analysis of the intra-day spill overs between the returns of the FTSE
100 and the Dow Jones Industrial Average in testing this hypothesis. The use of the intra-day
data set was inspired by an effort to identify and measure the sooq spill overs separately in
three situations, namely: the first explores the impact of New York stock prices on London
stock prices the next morning, given that the New York stock exchange closes later than the
London stock exchange. The second case, on the other hand, takes into account the fact that
the London Stock Exchange opens earlier than the New York Stock Exchange and analyses
the impact of London stock prices on New York stock prices. Finally, the third case explores
the situation in which London and New York stock exchanges simultaneously trade and news
is simultaneously absorbed into both stock prices (Canto, 2004: 68). With the intra-day stock
prices for the FTSE 100 and the Dow Jones Industrial Average, the author was able to
calculate the returns of intra-day stock indexes for the period from January 4 to March 28,
2003. The EGARCH two-stage method was then used to evaluate the above-mentioned three
events. The findings from the estimate in case one and two showed evidence as a significant
source of stock return associations in support of the global factor hypothesis. In addition,
international returns are significantly affected by subsequent domestic returns. Based on the
significant parameters estimated, the author suggests that international stock exchange
developments will partially explain stock sooq movements, as innovative domestic traders
learn from them. As a result, there is significant evidence of growing international stock
sooq linkages between New York and the London Stock Exchanges that support financial
sooqs globalization around the world (Canto, 2004: 97). As for the third case studied, the
findings show a significant bi-directional relationship between the New York stock
exchanges and the London stock exchanges in terms of return interactions during the regular
hours of trading.

Chapter 3
Data and Methodology

The research will be undertaken using the historical daily closing price of the main indexes
subjected to the study. The indexes are therefore representative of each stock sooq by overall
capitalisation. Data will be sourced directly from the Bloomberg terminal.
Using linear regression, which is statistical technique used to learn about the relationship
between an independent variable and a dependent variable, we will try to predict the value of
our dependent variable on the value of the independent variable. There are 2 types of

29
regression equation, one which is simple regression and the other one is called multiple
regression model. The simple regression model takes the form of Yi= β0 + β1X+ u where β0
is the intercept, β1is the slope of the line, X is the independent variable or explanatory or the
regressor variable, u is the error term or residual and Y is the dependent variable or explained
or the regressed variable. The multiple regression model takes the form of
Yi=β0+ β1X1+ β2X2+ β3X3………. βkXk + Ui
Variance Analysis (ANOVA) is a statistical analysis technique that separates an observable
aggregate variation contained within a data set into two parts: systematic and random factors.
The systemic variables, while the random factors do not, have a statistical effect on the given
data set. Analysts use the ANOVA test to determine how independent variables influence a
regression study on the dependent variable. Up until 1918, when Ronald Fisher created the
variance method analysis, the t-and z-test methods developed in the 20th century were used
for statistical analysis. The Fisher analysis of variance is also called ANOVA, and it is the
extension of the t-and z-tests. Upon featuring in Fisher's book, "Statistical Methods for
Research Workers," the concept became well known in 1925. It was used in experimental
psychology and then applied to more complex subjects.

Description of variables

Table 3.1
Variable Description
ICXCOM ICXCOMP is the BRVM Composite Share Index which is made up of all
P listed companies on the Regional Stock Exchange.

ICX1O ICX10 is the BRVM Index which is made of the 1o top listed companies on
the Regional Stock Exchange.

FTSE JSE The FTSE/JSE Africa All Shares Index is a sooq capitalization-weighted
index. Companies included in this index make up the top 99% of the total pre
free-float sooq capitalization of all listed companies on the Johannesburg
Stock Exchange.

FTSE JSE
40
NGSE The Nigerian Stock Exchange All Share Index was formulated in January
1984 with a base value of 100. Only ordinary shares are included in the
computation of the index. The index is value-relative and is computed daily.
The disparity between the intraday and official close values is due to
Exchange limitation. Bloomberg displays as per NSE disseminated

NGSE The NSE 30 Index includes the top 30 companies in terms of sooq
capitalisation & liquidity. The index is a price return index and is weighted by
adjusted sooq cap. The index has a start date of 1 January, 2007 and a base
value of 1,000 points.

NGE KN Nairobi Securities Exchange PLC operates as a stock exchange. The

Company offers an automated platform for the listing and trading of multiple
securities and products which includes exchange traded funds, financial and
commodity derivatives, and carbon credits. Nairobi Securities Exchange

30
 serves local and international investors in Africa. NSE KN

The dependent variable will be the ICXCOMP.

Chapter 4

Empirical analysis and finding

31
 We will firstly regress the dependent variable on ICX10 which represent the
10 top companies to observe the correlation among them. The data consist on the last price
from 12/12/2007 to 29/11/2019. We used the function of data analysis and regression on
excel for the purpose of our study.

ICXCOMP is regress on ICX10

Table 4.1
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.930156
R Square 0.865191
Adjusted R 0.865123
Square
Standard 19.58026
Error
Observation 1998
s

ANOVA
  Df SS MS F Significan
ce F
Regression 1 4911232491123 12810.1 0
2 2
Residual 1996 765239.9 383.386
7
Total 1997 5676472      

  Coefficien Standard t Stat P-value Lower Upper Lower Upper

ts Error 95% 95% 95.0% 95.0%
Intercept -16.9088 2.167417 - 9.79E- -21.1595 - - -
7.80137 15 12.6582 21.1595 12.6582
ICX10 1.088117 0.009614 113.181 0 1.069262 1.10697 1.06926 1.10697
8 1 2 1

ICXCOMP= -16.9088+ 1.088117ICX1O

Figure1

32
 ICX10 Residual Plot
60
40
Residuals

20
0
100 150 200 250 300 350
-20
-40
ICX10

ICX10 Line Fit Plot

400
ICXCOMP

200

0
100 150 200 250 300 350
ICX10

ICXCOMP Predicted ICXCOMP

Normal Probability Plot

400
300
ICXCOMP

200
100
0
0 20 40 60 80 100 120
Sample Percentile

We will now regress the ICXCOMP on the other indexes to observe how they are related.
The data range from 2014 to November 2019.

33
 Table 4.2
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.897144
R Square 0.804867
Adjusted R 0.803043
Square
Standard 10.28776
Error
Observations 325

ANOVA
  df SS MS F Significanc
eF
Regression 3 140132.4 46710.7 441.342 1.6E-113
9 6
Residual 321 33973.98 105.837
9
Total 324 174106.3      

  Coefficient Standard t Stat P-value Lower 95% Upper Lower Upper

s Error 95% 95.0% 95.0%
Intercept -107.704 12.80073 -8.41391 1.33E-15 -132.888 -82.5203 -132.888 -82.5203
NGSE 0.002126 0.000222 9.56875 3.01E-19 0.001689 0.00256 0.00168 0.002563
5 3 9
NSE KN 4.841156 0.514636 9.40695 1.01E-18 3.828671 5.85364 3.82867 5.853641
5 1 1
FTSE JSE 0.003201 0.000299 10.6959 4.86E-23 0.002613 0.00379 0.00261 0.00379
9 3

ICXCOMP= -107.704+0.000222NGSE +0.514636NSE+0.000299JSE

sooq reaction with the 2008 calamity

In this section section we will obseve the indexes of the different four stock sooqs
performance before and after the calamity. Data will be from 2nd January 2000 from 2nd
january 2009. And from 2nd January 2009 to 2nd January 2019.

At the beginning of 2008 the indexes show a descendanttrend (ecxept for the Nairobi stock
exchange which data are only avalaibe at the beginning of 2014) following the mortgage
calamity in USA. The African stock sooq did not escape from propapagation of the
calamity like the rest of most stock sooqs worlwide

34
Figure 4.2

NGSE ALL SHARE INDEX

60000
40000
20000
0
27 08
2 8 08

11 7/ 2 7
0 7

23 06

9/ 6
7/ 5
5/ 5

19 03
27 0 3

3 2
/4 0 2
13 01
14 0 1
2 2 01

2/ 0
2 5 08

2 7 06

4/ 4
8 4

00
/2 0 0

5 / 20 0
2 0

8/ 200
2 / 2 00
8/ 2 00
3/ 2 0 0
9/ 200

5/ 2 0 0
7/ /2 0

6/ / 2 0

3/ / 2 0

12 / 2 0
2 / / 20
9/ / 20
4/ /20

1/ / 2 0

9/ /20

7/ / 2 0
2/ /20
9/ / 20

20
/

/
3
/2
12

NGSE30
2000
1000
0
09 08 08 08 08 08 08 08 08 08 08 08 08 08 07 07 07 07 07 07 07 07 07 07 07 07 07
/ 2 0 /20 /20 /20 /20 /2 0 /2 0 /2 0 /2 0 /20 /20 /20 /2 0 /20 /20 /2 0 /20 /2 0 /2 0 /20 /20 /20 /20 /20 /20 /20 /20
2 5 7 0 2 5 8 0 3 5 8 9 1 4 7 9 0 4 7 0 2 5 7 0 2 2 5
1 / 1 2 / 1 1 / 0 / 1 9 / 1 8/ 1 7/ 1 6/ 2 5/ 2 4 / 2 3 / 2 2 / 2 2 / 1/ 1 2 / 11 / 0 / 1 9/ 1 8/ 1 7 / 2 6 / 2 5 / 2 4 / 2 3 / 3 3/ 2/ 1/
1 1

BRVM COMPOSITE
300
250 Observations of
200 the indexes at the
150 beginning of 2009
100 As we can observe
50
the indexes started
to gain value at the
0
0 8 08 08 07 07 06 06 05 05 0 4 04 0 3 03 03 02 02 01 0 0 00
/ 20 /2 0 /20 /2 0 /20 /2 0 /20 /20 /2 0 /20 /2 0 /20 /20 /2 0 /20 /20 /20 /20 /20
6 4 5 3 7 2 6 4 5 6 4 5 9 8 9 7 9 2 2
/ 2 7 / 1 / 2 8/ 1 2/ 8/ 2 3/ 9 / 1 4 / 0 / 2 5/ 2 2 / 1 7/ 1/ 2 8 / 1 3/ 8 / 2 2 / 2 3 / 2
12 1 1 1

35
end of the calamity but for some reasons, they started to show a down trend in the past 2
years.

Figure 4.3

JSE TOP40 Index

60000
50000
40000
30000
TOP40 Index - Last Price
20000
10000
0
8 8 7 6 5 4 3 2 1 0 9
2 01 2 01 201 20 1 2 01 2 01 201 20 1 201 201 2 00
/ / / / / / / / / / /
2 1 /9 23 / 4 19 /4 18 / 2 14 10 27
1 2 / 1 1 / 2 2/ 3 3 / 4 4 / 5 / 5/

36
 NSE KN
25

20

15

10 Last Price

BRVM 10
350
300
250
200
150 Last Price
100
50
0
1 8 18 17 16 16 15 14 14 13 12 11 11 10 09 09
/ 20 /2 0 /2 0 /20 /20 /2 0 /2 0 /20 /2 0 /2 0 /20 /2 0 /2 0 /20 /2 0
6 8 4 1 7 8 5 0 5 0 8 7 8 1 2
2 / 2 3/ 2 7/ 1 0 / 3 2 / 1 6 / 9/ 2 1 / 1 4/ 2 8/ 1 1 / 2 3 / 6 / 9 / 2 1 /
1 1 1

37
 BRVM COMPOSITE
350
300
250
200
150 Last Price
100
50
0
1 8 18 17 1 6 16 15 14 14 13 12 11 11 10 09 09
/ 20 /2 0 /2 0 /20 /20 /2 0 /20 /20 /20 /2 0 /20 /20 /20 /2 0 /20
6 8 4 1 7 8 5 0 5 0 9 8 9 2 7
2 / 2 3/ 2 7/ 1 0 / 3 2 / 1 6 / 9 / 2 1 / 1 4 / 2 8/ 1 1 / 2 3/ 6/ 9/ 2 1/
1 1 1

NGSE30
2500

2000

1500

1000 Last Price

500

0
1 8 18 17 1 6 16 15 1 4 14 13 12 12 11 10 10 09
/ 20 /2 0 /2 0 /20 /2 0 /2 0 /20 /20 /2 0 /20 /20 /20 /20 /2 0 /20
4 5 4 3 5 5 3 5 7 7 7 5 4 7 2
2 / 2 4/ 2 8/ 2 2 / 2 4/ 2 8/ 2 2 / 2 4 / 2 8/ 2 2 / 2 4 / 2 8 / 2 2 / 2 4/ 2 6 / 1
1 1 1 1 1

NGSE ALL SHARE INDEX

50000
45000
40000
35000
30000
25000
20000 Last Price
15000
10000
5000
0
18 18 17 1 6 16 15 14 13 13 12 11 10 10 09
/ 20 /20 /20 /20 /2 0 /20 /2 0 /20 /20 /20 /2 0 /20 /20 /20
1 3 2 9 7 6 3 0 1 1 6 3 1 9
2 / 2 4/ 7 / 1 0 / 1 1/ 2 5/ 8/ 1 1 / 2 3/ 6 / 1 9/ 1 2 / 2 4/ 7/
1 1 1 1

Figure 4.4

38
 S&P 500 Index (NYSE)
3500
3000
2500
2000
1500
1000
500
0
19 19 18 17 17 16 15 14 14 13 12 12 11 10 09 09 08 07 07 06 05 04 04 03
/20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20 /20
5 2 1 3 7 9 2 1 0 0 8 2 7 0 9 6 8 1 2 6 8 8 4 7
/2 /1 /2 0/ /1 /2 /1 /2 /1 /2 /2 /1 /2 /1 /1 3/ 6/1 10/ 1/1 4/2 8/ 1/1 3/ 6/1
11 3 6 1 1 4 8 11 3 6 9 1 4 8 11 1

Last Price

RETURN OF AFRICAN STOCK SOOQ COMPARE WITH S AND P

Table 4.3
STOCK SOOQ 1M 1Y 3Y 5Y 10Y YTD
Botswana Stock 0.30% - -22.00% -27.40% -11.30% 0.20%
Exchange 14.90%
BRVM 1.30% - -45.60% -39.90% 8.10% 0.60%
30.40%
Casablanca Stock 2.70% - N/A N/A N/A -2.40%
Exchange 17.20%
Dar es Salaam Stock -4.10% - -27.10% -31.30% -5.30% -7.10%
Exchange 19.80%
Egyptian Exchange 2.70% - -0.70% -26.20% N/A 19.40%
16.10%
Ghana Stock Exchange -0.80% - -5.70% -43.10% N/A -
41.30% 13.40%
Johannesburg Stock 8.20% - 1.70% -15.60% 48.80% 12.20%
Exchange 14.00%
Lusaka Stock Exchange -6.80% - -17.80% -54.80% 11.20% -2.40%
23.30%
Malawi Stock Exchange -2.90% 12.40% 88.10% 6.60% N/A 0.70%
Nairobi Securities -0.40% - 7.10% -10.30% 117.50 13.00%
Exchange 13.10% %
Namibian Stock 1.00% - 21.60% 36.00% 142.80 1.80%
Exchange 12.40% %
Nigerian Stock Exchange -6.30% - -35.80% -66.20% -43.60% -6.50%
29.60%
Rwanda Stock Exchange -0.40% -3.20% -23.30% -60.80% N/A 0.10%
Stock Exchange of -0.70% -7.20% 20.80% -9.90% 91.30% -4.90%
Mauritius

39
Uganda Securities 1.30% - -10.90% -25.20% 45.70% 7.60%
Exchange 18.40%
Zimbabwe Stock 10.10% 35.00% 322.10 158.20 347.40 -8.30%
Exchange % % %
S&P500 3.90% 11.20% 42.60% 56.40% 237.20 17.50%
%

Figure 4.5

AFRICAN STOCK MARKET RETURN

S&P500
Uganda Securities Exchange
Rwanda Stock Exchange
Namibian Stock Exchange
Malawi Stock Exchange
Johannesburg Stock Exchange
Egyptian Exchange
Casablanca Stock Exchange
Botswana Stock Exchange
-400.00% -200.00% 0.00% 200.00% 400.00% 600.00% 800.00% 1000.00%

1M 1Y 3Y 5Y 10Y YTD

As we can see in the above table, apart from the Zimbabwe and the Malawi stock exchange
who are performing well, all the rest of the sooqs are giving an Annual negative return. By
doing the arithmetic mean on all the African stock exchange return based on one-year return,
we found an overall negative return of -13.34%.

40
 Chapter 5

Conclusion
Overall results from this study provide evidence that show a relation among the
equity sooqs of Sub Saharan Africa. These results are in line with international evidence of
financial data exhibiting the phenomenon of correlation and their down trending over the
period. Although there is no evidence of evidence of perfect positive correlation and perfect
negative correlation for the selected countries, all the African equity sooqs show evidence of
a relationship among them. Although the results provide inclusive observations, certain
characteristic of volatility and expected returns can be estimated. The inclusive results may
be attributable to the recording of data in Africa, an area that immensely require
improvement, but the observations remain necessary to contribute and probe for more studies
in this subject. The depression of stock returns on most of the African sooqs resulting from
changes in stock returns of the NYSE illustrate the significant short- and long-run stock price
co-movements existing between the African sooqs and the American stock sooq. This may
be due to the important trade and financial linkages between these economies. However, a
shock to the BRVM does not significantly affect any of the other stock sooqs speaks to the
still-relatively small size of this sooq compared to the other African sooqs which are more
dominant, especially in their respective subregions. The BRVM, being the youngest, the
smallest in terms of sooq capitalization and the least developed of the four does not have a
strong dominance in the region to be able to affect the other sooqs. Moreover, the
geographical proximity between the BRVM and the NGSE, and the fact that they are both
members of the ECOWAS does not improve the level of integration between their stock
sooqs, despite their strong trade links. With South Africa being ranked high on the list of the
African trading partners of Nigeria, Kenya and the WAEMU, and with the JSE being the
dominant sooq in the region, it is intuitive that a shock to the sooq has a significant impact
on the other three smaller sooqs, but only get affected by shocks from the more developed
sooqs such as the NYSE with whom it shares strong trade ties. The JSE surely represents a
more attractive option to the international investors looking to expand their portfolios to
African stocks. Additionally, the influence of the Nigerian and Kenyan sooqs on each other,
could stem from their strong economic and financial ties with South Africa, which also links
them indirectly.
The rising level of foreign direct investment and portfolio investment towards the African
continent constitutes an important contribution to the development of the region’s financial
sector and fiscal as a whole. Moreover, following the worldwide movement toward economic
and financial integration, developing sooqs are more targeted now than they were decades
ago, worldwide investors are practically interested in those sooq because of the involvement
of many natural resource companies such as crude oil, diamond and gold which is increasing
the interest in studying financial sooqs in the region.
The main objective of this study was to investigate the existence of stock price co-movements
and the simultaneous downtrend among stock sooqs in Sub-Saharan Africa as well as their
linkages with the more developed sooqs. The study considered four Sub-Saharan African
sooqs, namely, the Nigeria Stock exchange, the Nairobi Securities Exchange, the
Johannesburg stock Exchange and the West African Exchange.

41
This study was limited by the unavailability of the data of indexes last price for business days
which were holidays in the different sooqs considered. This led us to the use of interpolation
to replace the missing values and increases the risk of data mining. While this study was only
subjected to a few Sub-Saharan African countries, and only one developed sooq, it could be
more interesting to go deep in the analysis by including more African countries and more
developed sooqs.
Also, the sample period could be extended to include periods of economic financial as
well as political turmoil in the developed sooqs, in order to investigate the effect of the
calamity on the selected linkages.
Further study can also be done by analysing the African equity sooqs return and volatility
relation. The mean equation supports the theory that volatility is priced, hence investors
should anticipate higher returns where they assume higher risk. However, in other equity
sooqs, this theory is not supported. The stock return volatility risk premia have variations
over time in Africa equity sooqs. Descendant variations are on average larger than upward
variations. Volatility is transmitted from international sooqs to some of the African equity
sooqs, whereas some African equity sooqs do not witness such a relationship.

42
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