African stock markets: multiple variance ratio tests of random walks

This paper identi®es four categories of formal stock market in Africa: South Africa, medium-sized markets, small new markets which have experienced rapid growth, and small new markets which have yet to take o€ . The hypothesis that a stock market price index follows a random walk is tested for South Africa, ®ve medium-sized markets (Egypt, Kenya, Morocco, Nigeria and Zimbabwe) and two small new markets (Botswana and Mauritius) using the multiple variance ratio test of Chow and Denning (Journal of Econometrics, 58, 385±401, 1993). The hypothesis is rejected in seven of the markets because of autocorrelation of returns. For the South African market, the stock price index follows a random walk. The paper also suggests factors which may contribute to whether or not an equity market follows a random walk.