Stock Market Integration Between Nigeria and Selected African Markets: Implications for Portfolio Diversification

Capital market integration limits the benefits of cross-market portfolio diversification, and assessing the degree of integration between the Nigerian capital market and other African markets is important for both investors and policymakers seeking to promote intra-African financial flows. This study empirically investigates the degree of stock market integration between Nigeria and selected African capital markets, specifically South Africa, Egypt, Kenya, and Ghana, for the period 2010 to 2022 using monthly stock index data. Integration was measured using Johansen cointegration analysis, dynamic conditional correlation-GARCH models, and Diebold-Yilmaz volatility spillover analysis. Results showed no significant long-run cointegrating relationship between the Nigerian Stock Exchange All-Share Index and the Johannesburg Stock Exchange and Egyptian Exchange during the study period, suggesting low integration and potential diversification benefits. Dynamic conditional correlations were time-varying and spiked during global crisis episodes (2015 to 2016 commodity crash and 2020 COVID-19 shock), indicating conditional integration during market stress. Volatility spillovers from South Africa to Nigeria were the strongest directional effect, followed by Ghana-Nigeria spillovers. The study concludes that while Nigerian and selected African markets are not fully integrated in normal market conditions, crisis periods produce temporary integration that reduces diversification benefits. These findings have direct implications for the design of intra-African portfolio investment strategies and support the development of the African Continental Free Trade Area financial market deepening agenda.

Keywords: stock market integration, portfolio diversification, cointegration, African markets, volatility spillovers