A Study Of African Stock Exchanges And Their Correlation Between Exchanges In The Developed World As It Relates To Portfolio Diversification And Investor’s Needs

Open Access
Author:
Pica, Jenna Clare
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • Joseph Randall Woolridge, Faculty Reader
Keywords:
  • African Frontier Markets
  • Emerging Markets
  • BRICS Countries
  • Developed Markets
  • Portfolio Diversification
  • Correlation
Abstract:
This thesis focuses on the development of the frontier markets of Africa and the correlation between these markets and the developed and emerging markets of the world, in an effort to analyze their role in international portfolio diversification. Academic research widely states that international stock markets, in particular, developed and emerging markets, are becoming more correlated partially due to the driving factor of globalization. As the last investment frontier for emerging market investment, Africa is becoming an interest to investors worldwide as a means to add increased diversification to their portfolios. Research concerning the possible profitable opportunities in African markets has been largely overlooked and many questions regarding the benefits of investing in the frontier markets of Africa are left unanswered. This paper seeks to answer these questions by analyzing the degree of correlation between a sample of the frontier markets of Africa and the developed and emerging markets, as well as a volatility analysis of each respective market. The results of the research suggest that investments in the African frontier markets may be a valuable addition to an investor’s world portfolio because these markets do not have relatively average means and standard deviations, while at the same time providing lower correlations to one another and various world markets.