Abstract
The purpose of this study is to empirically test if the efficient market hypothesis (EMH) holds in the Egyptian, Nigerian and South African stock market indices: arguably Africa’s three most important financial markets. To test whether the hypothesis holds, the study applied several trade strategies to examine if profitable opportunities (above market benchmarks) exist within these markets. The trade strategies applied included the momentum strategies such as the moving average and the trade range break-out. Parametric and non-parametric comparative tests in the form of the two-sample t-test and Wilcoxon Rank Sum test were employed to ascertain if the profits generated by the trade strategies exceeded the market benchmarks. The dissertation tested for data snooping biases within the trade strategies by employing White’s Reality Check. Ultimately, the findings were that South Africa's Johannesburg Stock Exchange (JSE) was the most efficient market and that the Nigerian Stock Exchange was the least efficient market. This conforms with earlier studies where more advanced financial markets are observed to be efficient compared to less advanced ones. These findings suggest that there are better profitability opportunities in Egypt and Nigeria relative to South Africa, using the trade strategies applied in this study. However, these profitable opportunities are only enjoyed in the short run as evidence from the literature suggests that as markets develop and information becomes more freely available, profitable opportunities reduce to the benchmark.
M.Com. (Financial Economics)