Market efficiency in developing African stock markets: what do we know?

In the late 1980s, many countries in Africa established national stock exchanges with a view to foster financial development and economic growth. This paper provides a survey and synthesis of the extant literature on the efficiency of African equity markets (AEMs). It explores the path of development of stock markets in Africa with an emphasis on their efficiency, trends in performance, and developmental challenges. We find that much of the research into the efficiency of AEMs has focused on weak-form efficiency and the results, though mixed, lean towards rejection of the weak-form efficiency. We also find that the empirical literature has ignored the role of behavioral biases in the analyses of market efficiency, and has treated efficiency as static over different stages of market development. Finally, considering the traditionally small size of most AEMs, increased harmonization and integration of the various national exchanges may improve the informational efficiency and depth of AEMs.