REGIME SWITCHING MODEL AMONG SELECTED AFRICAN STOCK MARKET

Abstract

Over the past few decades, the world stock markets have surged, and emerging markets have accounted for a large amount of this boom. This has resulted into emergence of new market stock in Africa; hence the study examines the stock market’s volatility in Nigeria, South Africa and Egypt using the Markov regime switching Model. The study utilizes monthly observations over the period from January 1997 to September 2019. The study utilizes two state Markov Switching Autoregressive (MS-AR) models in order to capture regime shifts behaviour in both the mean and the variance of the three countries All Share Index (ASI). The MS-AR results of the three countries ASI suggested evidence of a regime-switching behaviour. It shows that only extreme events can switch the series from regime 1 (appreciation) to regime 2 (depreciation), or vice versa. The results also identify that during all major global economic crises in the US sub-prime (2008) there was negative impact in all the three countries under study and European debt crisis (2010) did not really have any impact on the three countries under studies. The results further revealed that Nigeria ASI recorded the lowest appreciation regime of 10 months and the highest depreciation regime of 82 months against South-Africa ASI and Egypt ASI. Egypt recorded the highest appreciation regime of 69 months and the lowest depreciation regime of 18 months. Hence, the  results shows that the Nigeria stock market is more sensitive to external shocks implying that there is ample scope of policy intervention.

Keywords: Africa Stock Markets, Markov Switching Autoregressive, All Share Index, Appreciating regime, Depreciation regime