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Handbook of Frontier Markets: The African, European and Asian Evidence
Handbook of Frontier Markets: The African, European and Asian Evidence
Handbook of Frontier Markets: The African, European and Asian Evidence
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Handbook of Frontier Markets: The African, European and Asian Evidence

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Handbook of Frontier Markets: The European and African Evidence provides novel insights from academic perspectives about the behavior of investors and prices in several frontier markets. It explores finance issues usually reserved for developed and emerging markets in order to gauge whether these issues are relevant and how they manifest themselves in frontier markets.

Frontier markets have now become a popular investment class among institutional investors internationally, with major financial services providers establishing index-benchmarks for this market-category. The anticipation for frontier markets is optimistic uncertainty, and many people believe that, given their growth rates, these markets will be economic success stories. Irrespective of their degrees of success, The Handbook of Frontier Markets can help ensure that the increasing international investment diverted to them will aid in their greater integration within the global financial system.

  • Presents topics in the context of frontier markets and uses tests based on established methodologies from finance research
  • Draws from authors who are established university academics
  • Pays particular attention to financial institutions and applications of financial risk models
  • Explores finance issues usually reserved for developed and emerging markets in order to gauge whether these issues are relevant and how they manifest themselves in frontier markets
LanguageEnglish
Release dateAug 5, 2016
ISBN9780128038406
Handbook of Frontier Markets: The African, European and Asian Evidence

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    Handbook of Frontier Markets - Panagiotis Andrikopoulos

    Handbook of Frontier Markets

    The African, European and Asian Evidence

    Edited by

    P. Andrikopoulos

    Coventry Business School

    Coventry, United Kingdom

    G.N. Gregoriou

    State University of New York (Plattsburgh)

    School of Business and Economics

    Plattsburgh, NY, United States

    V. Kallinterakis

    University of Liverpool Management School

    Liverpool, United Kingdom

    Table of Contents

    Cover

    Title page

    Copyright

    List of Contributors

    About the Editors

    About the Contributors

    Acknowledgment

    Section A: Africa

    Chapter 1: Testing for the Weak-Form Market Efficiency of the Dar es Salaam Stock Exchange

    Abstract

    1. Introduction

    2. The Random Walk Theory and the Efficient Market Hypothesis

    3. Empirical Literature Review on Weak-Form Market Efficiency

    4. Data Sources

    5. Methodology

    6. Analyses and Presentation of the Results

    7. Conclusions and Recommendations

    Chapter 2: Stock Returns and Inflation: The Case of Botswana

    Abstract

    1. Introduction

    2. Literature Review

    3. Overview of the Economy of Botswana

    4. Data and Methodology

    5. Results

    6. Conclusions

    Chapter 3: Modeling and Forecasting Stock Market Volatility in Frontier Markets: Evidence From Four European and Four African Frontier Markets

    Abstract

    1. Introduction

    2. Background Information

    3. Data

    4. Methodology

    5. Findings and Discussions

    6. Conclusions and Further Research

    Chapter 4: Herd Behavior in Frontier Markets: Evidence from Nigeria and Morocco

    Abstract

    1. Introduction

    2. Methodology and Data

    3. Empirical Results

    4. Conclusions

    Chapter 5: Effects of Interest Rates and Exchange Rates on Bank Stock Returns

    Abstract

    1. Introduction

    2. Conclusions

    Chapter 6: Financial Contagion From US to African Frontier Markets During the 2007–09 Global Financial Crisis

    Abstract

    1. Introduction, Aims, and Literature

    2. Data and Descriptive Statistics

    3. Hypotheses and Methodology

    4. Results

    5. Discussions

    6. Conclusions

    Appendix 1: Time-Varying Correlations of US with African Markets

    Appendix 2: Time-Varying Correlations of US with Developed Markets

    Section B: Europe

    Chapter 7: An Assessment of the Real Development Prospects of the EU 28 Frontier Equity Markets

    Abstract

    1. Introduction

    2. A Comparative Analysis of the EU 10 Frontier Markets

    3. Hypothesis, Data, and Research Results

    4. Discussions and Conclusions

    Chapter 8: Are European Frontier Markets Efficient?

    Abstract

    1. Introduction

    2. The Theory of Informational Market Efficiency

    3. The Empirical Literature on Frontier Markets and Informational Efficiency

    4. Methodology

    5. Overview of Eastern European Markets and Sample Selection

    6. Results

    7. Conclusions and Recommendations

    Chapter 9: Another Look at Financial Analysts’ Forecasts Accuracy: Recent Evidence From Eastern European Frontier Markets

    Abstract

    1. Introduction

    2. Conceptual Framework

    3. Data and Methodology

    4. Analysis of FAF on Eastern European Frontier Markets

    5. Conclusions

    Chapter 10: Are There Herding Patterns in the European Frontier Markets?

    Abstract

    1. Introduction

    2. Database

    3. Methodology

    4. Empirical Results

    5. Conclusions

    Acknowledgment

    Section C: Asia

    Chapter 11: Is Bankruptcy a Systematic Risk? Evidence From Vietnam

    Abstract

    1. Introduction

    2. Literature Review

    3. Research Design, Data, and Methodology

    4. Results of Analysis and Discussion of Findings

    5. Conclusions and Recommendations

    Chapter 12: Investors’ Herding in Frontier Markets: Evidence From Mongolia

    Abstract

    1. Introduction

    2. Mongolian Stock Exchange: A Brief Overview

    3. Data and Methodology

    4. Results and Conclusion

    Chapter 13: Structural Breaks, Efficiency, and Volatility: An Empirical Investigation of Southeast Asian Frontier Markets

    Abstract

    1. Introduction

    2. Literature Review

    3. Data and Methodology

    4. Empirical Results

    5. Conclusions

    Index

    Copyright

    Academic Press is an imprint of Elsevier

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    No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without permission in writing from the publisher. Details on how to seek permission, further information about the Publisher’s permissions policies and our arrangements with organizations such as the Copyright Clearance Center and the Copyright Licensing Agency, can be found at our website: www.elsevier.com/permissions.

    This book and the individual contributions contained in it are protected under copyright by the Publisher (other than as may be noted herein).

    Notices

    Knowledge and best practice in this field are constantly changing. As new research and experience broaden our understanding, changes in research methods, professional practices, or medical treatment may become necessary.

    Practitioners and researchers must always rely on their own experience and knowledge in evaluating and using any information, methods, compounds, or experiments described herein. In using such information or methods they should be mindful of their own safety and the safety of others, including parties for whom they have a professional responsibility.

    To the fullest extent of the law, neither the Publisher nor the authors, contributors, or editors, assume any liability for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions, or ideas contained in the material herein.

    Library of Congress Cataloging-in-Publication Data

    A catalog record for this book is available from the Library of Congress

    British Library Cataloguing-in-Publication Data

    A catalogue record for this book is available from the British Library

    ISBN: 978-0-12-803776-8

    For information on all Academic Press publications visit our website at https://www.elsevier.com/

    Publisher: Nikki Levy

    Acquisition Editor: Scott J. Bentley

    Editorial Project Manager: Susan Ikeda

    Production Project Manager: Jason Mitchell

    Designer: Mark Rogers

    Typeset by Thomson Digital

    List of Contributors

    P. Andrikopoulos,     Coventry Business School, Coventry, United Kingdom

    D.L.T. Anh,     School of Banking and Finance, National Economics University, Hanoi, Vietnam

    K. Bangassa,     University of Liverpool, Management School, Liverpool, United Kingdom

    J. Ahmadu-Bello,     School of Economics, Finance and Accounting, University of Coventry, Coventry, United Kingdom

    N. Blasco,     University of Zaragoza, Zaragoza, Spain

    D. Bond,     Ulster Business School, Ulster University, Londonderry, United Kingdom

    D. Bozdog,     Financial Engineering Division, Stevens Institute of Technology, Castle Point on Hudson, Hoboken, NJ, United States

    S. Brahma,     Glasgow Caledonian University Business School, Glasgow, United Kingdom

    A. Calugaru,     MarketAxess, New York City, NY, United States

    T. Chaiyakul,     Kasetsart University Sriracha Campus, Faculty of Management Sciences, Chonburi, Thailand

    A. Coën,     ESG-UQÀM, Graduate School of Business, University of Quebec in Montreal and Ivanhoe-Cambridge Real Estate Chair, Montreal, QC, Canada

    P. Corredor,     Public University of Navarre, Pamplona, Spain

    A. Desfleurs,     School of Accounting, Faculty of Administration, University of Sherbrooke, Sherbrooke, QC, Canada

    K. Dyson,     Ulster Business School, Ulster University, Londonderry, United Kingdom

    F. Economou,     Centre of Planning and Economic Research, Athens, Greece

    A. Erdenetsogt,     ABJYA LLC Brokerage Company, Ulaanbaatar, Mongolia

    S. Ferreruela,     University of Zaragoza, Zaragoza, Spain

    K. Gavriilidis,     University of Stirling Management School, Stirling, Scotland, United Kingdom

    M.A. Georgescu,     Faculty of Public Administration, National University of Political Studies and Public Administration, Bucharest, Romania

    G.N. Gregoriou,     State University of New York (Plattsburgh), School of Business and Economics, Plattsburgh, NY, United States

    Y. Guney,     University of Hull Business School, Hull, United Kingdom

    M. Iskandrani,     University of Jordan, Faculty of Business, Amman, Jordan

    V. Kallinterakis,     University of Liverpool, Management School, Liverpool, United Kingdom

    D.S. Kambouroudis,     School of Management, University of Stirling, Stirling, Scotland, United Kingdom

    E. Katsikas,     Kent Business School, University of Kent, United Kingdom

    L.M. Kgari,     Bank of Botswana, Finance Department, Gaborone, Botswana

    G. Komba,     Mzumbe University, School of Business, Morogoro, Tanzania

    M.K. Newaz,     Coventry Business School, Coventry, United Kingdom

    C. Pop,     Department of Business, Faculty of Business, Babeş-Bolyai University, Cluj-Napoca, Romania

    T. Rodgers,     School of Economics, Finance and Accounting, University of Coventry, Coventry, United Kingdom

    S.M. Wangeci,     Adam Smith Business School, University of Glasgow, Glasgow, United Kingdom

    About the Editors

    Dr Panagiotis Andrikopoulos is the Associate Head of School (Research) for the School of Economics, Finance and Accounting at Coventry Business School. Prior to joining Coventry University, Dr Andrikopoulos was a Reader in Finance at Leicester Business School (De Montfort University, United Kingdom) where he taught various finance courses such as investment theory and analysis, finance theory, corporate finance, and behavioral finance. During the period 2012–15, he has also been an Extraordinary (Adjunct) Associate Professor in Finance for the School of Accounting Sciences at North-West University of South Africa. He obtained his PhD in finance at the University of Portsmouth. Dr Andrikopoulos’s research interests lie in the areas of corporate finance, market efficiency, empirical asset pricing, and behavioral finance, subjects on which he has widely published in various academic journals of international standing, such as the Journal of Business, Finance and Accounting, the Accounting Forum, the European Journal of Finance, Review of Behavioral Finance and Journal of Economics and Business. He currently serves as a panel member of various editorial and/or scientific advisory boards and has also been a frequent contributor to a wide range of international conferences.

    Greg N. Gregoriou, a native of Montreal, obtained his joint PhD in finance at the University of Quebec at Montreal, which merges the resources of Montreal’s four major universities—McGill, Concordia, UQAM, and HEC. Dr Gregoriou is Professor of Finance at the State University of New York (Plattsburgh) and has taught a variety of finance courses such as alternative investments, international finance, money and capital markets, portfolio management, and corporate finance. He has also lectured at the University of Vermont, the University of Navarra, and the University of Quebec at Montreal. Professor Gregoriou has published 50 books, 65 refereed publications in peer-reviewed journals, and 24 book chapters since his arrival at SUNY Plattsburgh in Aug. 2003. His books have been published by McGraw-Hill, John Wiley & Sons, Elsevier-Butterworth/Heinemann, Taylor and Francis/CRC Press, Palgrave-MacMillan, and Risk Books. Four of his books have been translated into Chinese and Russian. His academic articles have appeared in well-known peer-reviewed journals such as the Review of Asset Pricing Studies, Journal of Portfolio Management, Journal of Futures Markets, European Journal of Operational Research, Annals of Operations Research, and Computers and Operations Research. Professor Gregoriou is the derivatives editor and editorial board member for the Journal of Asset Management as well as an editorial board member for the Journal of Wealth Management, the Journal of Risk Management in Financial Institutions, Market Integrity, IEB International Journal of Finance, and the Brazilian Business Review. His interests focus on hedge funds, funds of funds, commodity trading advisors, managed futures, venture capital, and private equity. He has also been quoted several times in the New York Times, Barron’s, the Financial Times of London, Le Temps (Geneva), Les Echos (Paris), and L’Observateur de Monaco. He has done consulting work for numerous clients and investment firms in Montreal. He is a part-time lecturer in finance at McGill University, an advisory member of the Markets and Services Research Centre at Edith Cowan University in Joondalup (Australia), a senior advisor to the Ferrell Asset Management Group in Singapore, and a research associate with the University of Quebec at Montreal’s CDP Capital Chair in Portfolio Management. In addition, he is a fellow at Hefei University of Technology at the Research Center for Operations & Productivity Management, in Hefei, China.

    Vasileios (Bill) Kallinterakis is currently Lecturer of Finance at University of Liverpool Management School; he has also lectured at Durham University Business School (from where he also obtained his PhD) and Leeds University Business School. During his career, he has taught a variety of courses related to behavioral finance, corporate finance, and econometrics. His research interests focus on behavioral finance, institutional investors, market volatility, and emerging markets. To date, he has published a series of academic articles in peer-reviewed journals including the European Financial Management Journal, the Journal of International Financial Markets, Institutions and Money, the International Review of Financial Analysis, and the Review of Behavioral Finance. He has contributed to the Wiley Encyclopedia of Management and has served as ad hoc referee to research projects submitted to the National Stock Exchange of India. He is currently a member of the editorial board of several peer-reviewed journals (Economic Analysis, International Business Research, and International Journal of Economics and Finance).

    About the Contributors

    Dao Le Trang Anh is a lecturer in finance at the National Economics University of Vietnam (NEU). Her teaching and research interests focus on the field of equity markets and corporate finance management, while she is currently involved in relevant research projects for the Vietnamese government. She holds an MSc in financial forecasting and investment from the University of Glasgow.

    Kenbata Bangassa holds a BA (honors) degree in accounting, MSc in finance, and PhD in finance. He has taught accounting and finance at the University of Liverpool, the University of Manchester, Strathclyde University, and Addis Ababa University at undergraduate and postgraduate levels. He has also supervised PhD theses and MSc dissertations of candidates who have successfully graduated. His research interests include developed, emerging, and frontier financial markets, as well as mutual fund performance, initial public offerings (IPOs), asset pricing, capital structure, value of analyst recommendations, and more. His work has been published in internationally refereed academic journals. He has held administrative positions up to the rank of head of finance department in government ministry. In connection to academic appointment at the universities he worked for, he held various administrative positions, including program director for undergraduate and postgraduate programs, external examiner, and referee for academic journals.

    Jaliyyah Ahmadu-Bello teaches in the Department of Economics, Finance, and Accounting at Coventry University. Her undergraduate studies were at Federal University of Technology, Minna, Nigeria, and she has subsequently completed master’s and PhD programs at Coventry University, United Kingdom. Her research interests include financial contagion effects in emerging and frontier African markets, and she has also worked as a research and development consultant in industry.

    Natividad Blasco is Professor of Finance at the Department of Accounting and Finance (Faculty of Economics and Business Administration) at the University of Zaragoza. Her key research interests include market microstructure, corporate finance, and behavioral finance. Her research has been published in peer-reviewed journals such as the Journal of Business Finance & Accounting, Journal of Accounting, Auditing and Finance, Journal of the Operational Research Society, Accounting and Finance, European Journal of Operational Research, Quantitative Finance, Applied Economics, and Journal of Behavioral Finance. She is currently combining teaching and research with professional collaboration with companies and private and public institutions.

    Derek Bond is a member of the academic staff at Ulster University. He is a former Principal Economist in the Northern Ireland Treasury and Director of the ESRC’s Northern Ireland Regional Research Laboratory. He has acted as an advisor to many national and international organizations and held honorary offices in various international learned societies. He is currently a member of the Northern Ireland Statistical Advisory Committee and Associate Editor of the Statistical Journal of the IAOS. He has published widely in the areas of (financial) econometrics, geographic information systems (GIS), and innovation.

    Dragos Bozdog, PhD, is the Deputy Director of the Hanlon Financial Systems Lab and Adjunct Professor in the Financial Engineering Division at Stevens Institute of Technology (United States). Dr Bozdog earned his PhD in financial engineering (Stevens Institute of Technology) and another PhD in mechanical engineering (University of Toledo). His research interests include mathematics of finance, high-frequency data analysis, rare events, emerging markets, algorithms and optimization, and tire mechanics. Previously, he was a postdoctoral fellow at Rutgers Center for Operations Research. In past years he worked as quantitative analyst for the financial industry and government. He published many research articles and book chapters, and he is regularly invited to give presentations at international conferences.

    Sanjukta Brahma is Senior Lecturer in Finance at Glasgow Caledonian University Business School. Her research interest is in the area of corporate finance, particularly mergers and acquisitions, initial public offerings, and firm valuation. Her work has been published in peer-reviewed journals, and she has published a book on financial markets and institutions and has presented in various international conferences.

    Adina Calugaru earned her PhD in finance from Babes-Bolyai University, Romania, and an MBA from Montclair State University (United States). She is working in the financial industry in New York City and is actively involved in investment funds research.

    Thitima Chaiyakul is Lecturer at the Faculty of Management Sciences, Kasetsart University in Thailand. Her previous employments include placements with the Bank of Thailand and the Thai Airways International Public Company Limited. Her research interests include financial investment, credit management, and operations management, while her work has also been published in several books. She obtained her PhD from the University of Liverpool and holds an MBA from Kasetsart University.

    Alain Coën is Full Professor of Finance at the Graduate School of Business (ESG) of the University of Quebec in Montreal (UQÀM). Before joining ESG–UQÀM, he was associate professor of finance at EDHEC School of Management. He obtained his PhD in finance from the University of Grenoble, and his PhD in economics from the University of Paris I Panthéon–Sorbonne. He holds an MA in economics with a major in macroeconomics from Laval University and accreditations to supervise research (HDR in management) from Paris-Dauphine University and (HDR in economics) from University of Paris I Panthéon–Sorbonne. He has been visiting professor at Paris–Dauphine University, University of Paris-Ouest-Nanterre, EDHEC, Laval University, HEC–University of Liège, and University of Sherbrooke. His research interests focus on asset pricing, international finance, hedge funds, REITs, business cycles, and financial econometrics. He has published in several international leading journals, including the Journal of Empirical Finance, Journal of Financial Research, Economics Letters, Finance Research Letters, Journal of Economics and Business, Finance, Journal of Alternative Investments, and others, and has written a book in financial management. He is an associate researcher of the Ivanhoé Cambridge Real Estate Chair at ESG–UQÀM Graduate School of Business.

    Pilar Corredor is Professor of Finance at the Department of Business Administration (Faculty of Economics and Business Administration) at the Public University of Navarre. Her key research interests are derivatives, corporate finance, and behavioral finance. Her research has appeared in peer-reviewed journals such as the Journal of the Operational Research Society, Journal of Futures Markets, Technovation, Journal of Business Research, Accounting and Finance, Quantitative Finance, Applied Economics, European Journal of Operational Research, International Review of Financial Economics, International Business Research, and Journal of Behavioral Finance.

    Aurélie Desfleurs is Associate Professor in the Accounting Department at the University of Sherbrooke (Canada). She graduated from the EDHEC School of Management and obtained her PhD in finance from Laval University. She is also a Chartered Professional Accountant of Canada. She has published articles in the Journal of Economics and Business and the Journal of Multinational Financial Management. Her research focuses on financial analysts’ forecasts, mergers and acquisitions, and International Financial Reporting Standards.

    Ken Dyson is a member of academic staff at Ulster University. He has worked as an academic consultant for major international banks, including Citi. He is recognized for his applied research on behavioral finance and has published mainly in the area of financial theory and the functioning of financial markets.

    Fotini Economou received her PhD from the Department of Business Administration at the University of Piraeus, Greece, supported by a scholarship from the Alexander S. Onassis Foundation. She is Research Fellow at the Center of Planning and Economic Research (KEPE), Athens, Greece, as well as Adjunct Lecturer at the Open University of Cyprus and the Hellenic Open University. Her research focuses on behavioral finance, herd behavior, investor sentiment, and international financial markets. She has published several papers in peer-reviewed financial journals (Journal of International Financial Markets, Institutions and Money and International Review of Financial Analysis, and others) and she has contributed to research projects for various public, private, and academic institutions.

    Ariunjargal Erdenetsogt is the Director of ABJYA LLC brokerage in Mongolia. Her previous professional experience includes placements with the Golomt Bank of Mongolia as treasury economist and product developer and at the Ministry of Mongolia as an analyst. She holds an MSc in finance and investment from Durham University.

    Sandra Ferreruela is Lecturer at the Department of Accounting and Finance (Faculty of Economics and Business Administration) at the University of Zaragoza. Her research focuses on behavioral finance issues and market microstructure. She has published in peer-reviewed journals such as Accounting and Finance, Journal of the Operational Research Society, Quantitative Finance, and Journal of Behavioral Finance, and her research has been presented in a variety of academic conferences internationally (eg, EFMA, World Finance Conference, Behavioral Finance Working Group Conference, and Euro Working Group on Financial Modeling).

    Konstantinos Gavriilidis teaches at the Stirling University Management School, United Kingdom. Before joining Stirling University, he held a position at Durham University Business School, and prior to joining academia he had an extensive work experience in the shipping industry. He has taught behavioral finance, corporate finance, and portfolio management, among other subjects, while his research area lies in behavioral finance. He holds an MSc in international money, finance, and investment and a PhD in finance, both from Durham University, United Kingdom.

    Maria-Andrada Georgescu is an associate professor at the National University of Political Studies and Public Administration, Romania. She holds a PhD in finance from Babes-Bolyai University, Romania. Her main research interest is focused on European security markets, mainly bond segments. She has published several papers in this field in collaboration with Cornelia Pop, and she also the author of a number of Romanian books on financial analysis and public finance.

    Yilmaz Guney is a senior lecturer and program leader for the MSc in financial management program at the Business School of the University of Hull, and was a lecturer at the School of Management of the University of Surrey. His main research area spans corporate finance, corporate governance, and behavioral finance. His work has been published in international journals, including the Journal of Financial and Quantitative Analysis, European Financial Management, International Review of Financial Analysis, Journal of Multinational Financial Management, and Pacific-Basin Finance Journal. Dr Guney holds a first degree in economics and MSc and PhD degrees in finance, and is the European editor of the International Journal of Behavioural Accounting and Finance.

    Majd Iskandrani holds a BA (honours) in Finance, MBA in Finance and PhD in Management studies. She has taught Accounting and Finance at the University of Liverpool and the University of Jordan at undergraduate level and has participated in training courses at institute of banking studies. Her research interests include: asset pricing, market liquidity, market microstructure, capital structure and trading mechanisms, etc. She is currently working as an Assistant to the Director of International Relations at the University of Jordan.

    Dimos S. Kambouroudis is a lecturer in finance at the University of Stirling in Scotland. He previously held positions at the University of Edinburgh and Durham University. His research interests are mainly in the area of empirical finance, modeling, and forecasting the volatility of stock markets with applications to risk management and socially responsible investing.

    Epameinondas Katsikas is lecturer in accounting at Kent University Business School, United Kingdom. His research interests are in financial and management accounting, the effect of change in management accounting systems, performance measurement, accounting innovations, public sector management, institutional change, benchmarking, stock markets, and investment banking. He has published his work in international peer-reviewed journals and presented parts of his work at international conferences.

    Lechedzani M. Kgari works in the finance department of the Bank of Botswana. She holds an MSc in financial forecasting and investment from Glasgow University, United Kingdom.

    Gabriel Komba is a PhD candidate at the University of Hull Business School. For the past 15 years, he has been a lecturer in accounting and finance at the School of Business, Mzumbe University, Tanzania. He holds an advanced diploma in certified accountancy (ADCA) from the Institute of Development Management (IDM) in Tanzania, and an MSc in international banking and finance from Salford University (United Kingdom). He also holds a certified public accountant (CPA) professional qualification.

    Mohammad K. Newaz is a Lecturer in Finance at Coventry Business School, Coventry University. His research interest includes international finance, corporate finance and behavioural finance especially in the areas of frontier and emerging markets. Mohammad is a frequent contributor to a wide range of local and international conferences.

    Cornelia Pop is a full professor at Babes-Bolyai University, Romania. She received her PhD in finance in 1997 from the same university. The core of her research focuses on the Romanian security market, considering aspects related to its status as a frontier market, the internal growth potential of the equity market, and the development of its bond market segment. On these topics she published numerous papers in English and Romanian. She also has a collateral research interest in the hospitality industry and is coauthor of an international book, Romania as a Tourist Destination and the Romanian Hotel Industry, published in 2007 by Cambridge Scholars Publishing, United Kingdom.

    Timothy Rodgers is a principal lecturer in economics and finance at Coventry University in the United Kingdom. He is currently academic course director of the MSc Investment Management program and also supervises a number of PhD students in the finance area. His personal research interests include financial contagion, portfolio theory, corporate capital structure, and Islamic finance, as well as, in the area of education, quality, ethnicity, and student performance in higher education.

    Susan Maina Wangeci is an MSc financial risk management graduate from Adam Smith Business School at the University of Glasgow. Economics is a field that intrigues her, especially in the African context.

    Acknowledgment

    We would like to thank Dr J. Scott Bentley, Susan Ikeda, and Jason Mitchell at Elsevier for all their help and support throughout this process. In addition, we thank several anonymous referees in the selection of the papers for this book. Neither the publisher nor editors can guarantee the accuracy of each chapter in this book; each author/coauthor(s) is/are responsible for their own work.

    Section A

    Africa

    Chapter 1: Testing for the Weak-Form Market Efficiency of the Dar es Salaam Stock Exchange

    Chapter 2: Stock Returns and Inflation: The Case of Botswana

    Chapter 3: Modeling and Forecasting Stock Market Volatility in Frontier Markets: Evidence From Four European and Four African Frontier Markets

    Chapter 4: Herd Behavior in Frontier Markets: Evidence from Nigeria and Morocco

    Chapter 5: Effects of Interest Rates and Exchange Rates on Bank Stock Returns

    Chapter 6: Financial Contagion From US to African Frontier Markets During the 2007–09 Global Financial Crisis

    Chapter 1

    Testing for the Weak-Form Market Efficiency of the Dar es Salaam Stock Exchange

    Y. Guney*

    G. Komba**

    *    University of Hull Business School, Hull, United Kingdom

    **    Mzumbe University, School of Business, Morogoro, Tanzania

    Abstract

    This chapter investigates the weak-form efficiency of the Dar es Salaam Stock Exchange (DSE), a frontier market, in Tanzania. The study covers the period from Jan. 2007 to Dec. 2014. To establish the consistency and robustness of the obtained conclusions, we employ different tests (ie, augmented Dickey–Fuller test, variance ratio test, and ranks and signs test) to examine the hypothesis that the returns based on the price and return indices follow a random walk process. The results provide convincing evidence that returns series based on price indices indeed follow a random walk. However, when the same tests are performed for the returns based on the return indices, the findings reveal that these series are not weak-form efficient, suggesting that investors might be able to predict future returns based on the current and past data.

    Keywords

    weak-form market efficiency

    ADF

    variance ratio

    ranks and signs tests

    Dar es Salaam stock market

    JEL classification

    C14

    G14

    Chapter Outline

    1 Introduction

    2 The Random Walk Theory and the Efficient Market Hypothesis

    3 Empirical Literature Review on Weak-Form Market Efficiency

    4 Data Sources

    5 Methodology

    5.1 Augmented Dickey–Fuller Test

    5.2 The Variance Ratio Test

    5.3 Ranks- and Signs-Based Variance Ratio Tests

    6 Analyses and Presentation of the Results

    6.1 Descriptive Statistics and Diagnostics

    6.2 Augmented Dickey–Fuller Test Results

    6.3 Variance Ratio Test Results

    6.4 Ranks- and Signs-Based Variance Ratio Tests

    6.5 Summary of the Findings

    7 Conclusions and Recommendations

    References

    1. Introduction

    As a prominent theory in finance, the efficient market hypothesis (EMH) posits that if prices are determined rationally, then the arrival of new information will cause them to change. This means that the price of a security at any time reflects investors optimal use of all available information. By definition, though, information is understood to arise instantly, in an unpredictable manner, and ubiquitously to all investors. It follows that no single individual has a chance to outperform the market, as the current price of an asset is the best estimate of its fundamental value (Fama, 1970).

    There are three types of efficiency: operational, allocational, and informational. Operational efficiency is concerned with the cost to buyers and sellers of securities on the exchange markets. Allocational (economic) efficiency refers to the supply of scarce resources to the most productive sectors of the economy. And finally, informational (pricing) efficiency is about the extent to which market prices accurately and instantly reflect all available and relevant information, hence implying a true representation of the fundamental value of the underlying asset. This is what the term efficient market hypothesis implies.

    The EMH is normally defined and tested in three different forms, namely the weak form, the semistrong form, and the strong form (Fama, 1970,  1991). The purpose of this chapter is to investigate the weak-form efficiency of the Dar es Salaam Stock Exchange. A stock market is described as being weak-form efficient if market participants cannot predict the prices of securities and hence cannot generate abnormal returns (except by chance) by analyzing movements of past information (eg, prices and trading volumes). This means that various mechanical investment strategies such as technical analysis or fundamental analysis are of no value, since all investors already know any signal conveyed by the historical information about future performance. Therefore, security prices will always be at equilibrium.

    Most of the research on market efficiency over the past decades has centered on the world’s developed and emerging equity markets. Little attention is given to the African frontier markets despite their offering higher rates of return than mature markets and significantly attracting the interest of foreign investors. More specifically, in spite of their economic potential for efficient allocation of scarce resources, the weak-form efficiency studies of the East African stock exchanges are sparse. The evidence from the relatively few known studies is too old to explain the prevailing states of market developments that can be attributed to the benefits of globalization, industrialization, and technology. Moreover, the results offer contradicting conclusions (Dickinson and Muragu, 1994; Smith et al., 2002).

    To the best of our knowledge, we offer for the first time an extensive examination of the behavior of stock prices and returns of the Dar es Salaam Stock Exchange (DSE) since its inception. The market was established in 1996 and started listing companies in 1998, when only one company was listed. Since then the total number of listed companies has increased to 21 by the end of 2014. Of

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