Title: Do Africa stock markets exhibit any evidence of risk-return trade-off?

Authors: Kalu O. Emenike

Addresses: Department of Accounting and Finance, University of Eswatini, Private Bag No. 4, Kwaluseni M201, Kingdom of Eswatini

Abstract: The purpose of this paper is to establish the nature of risk-return trade-off in selected Africa stock markets. Specifically, the paper evaluates stock markets in Côte d'Ivoire (BRVM), Kenya, Mauritius, Morocco, Nigeria, South Africa and Tunisia, for risk-return relationship. The paper employs AR(p)-GARCH(1, 1)-in-mean model on the seven stock markets over the 4 January 2010 to 30 November 2018 study period. The results evince positive and significant risk-return trade-off in the South Africa, Tunisia and Morocco stock markets. The results also show existence of positive but insignificant risk premium coefficients for the other Africa stock markets, which imply that stock markets in Côte d'Ivoire, Kenya, Mauritius, and Nigeria may not have compensated investors for inherent systematic risk. The results further suggest that investments in many of the Africa stock markets over the sample period would have provided returns uncorrelated with risk.

Keywords: risk-return trade-off; Africa stock markets; return volatility; GARCH-M model; capital assets pricing model; CAPM; portfolio investment and diversification; Côte d'Ivoire; BRVM; Kenya; Mauritius; Morocco; Nigeria; South Africa; Tunisia.

DOI: 10.1504/IJBD.2021.116970

International Journal of Bonds and Derivatives, 2021 Vol.4 No.3, pp.221 - 235

Received: 30 Nov 2020
Accepted: 15 Jan 2021
Published online: 10 Aug 2021 *

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