Capital Market Integration, Price Discovery, and Risk Sharing in the ECOWAS Financial Zone

Regional capital market integration within the Economic Community of West African States offers the theoretical potential to enhance risk sharing, improve price discovery, lower the cost of capital, and attract cross-border investment, yet the degree of actual integration achieved and the mechanisms through which it operates remain insufficiently understood. This study develops a multi-country asset pricing framework for the ECOWAS financial zone and estimates the degree of market integration between Nigeria, Ghana, Senegal, Cote d'Ivoire, and Sierra Leone. The theoretical contribution is an integration-adjusted conditional capital asset pricing model that accommodates partial market integration, time-varying integration coefficients, and the role of regional macroeconomic convergence criteria in driving integration dynamics. The empirical application uses daily stock return and bond yield data from the national exchanges and central banks of five ECOWAS member states from 2015 to 2023. Dynamic conditional correlation models, price discovery measures using the Hasbrouck and Gonzalo-Granger decompositions, and risk sharing tests following Asdrubali are applied. The study also evaluates the capital market development externalities of cross-listings on the BRVM and the Nigerian Exchange Group. The theoretical framework draws on international asset pricing theory, financial market integration literature, and the open economy macroeconomics of capital account liberalisation. A scenario analysis examines the implications of deeper integration for monetary policy independence, financial stability risk transmission, and investment portfolio diversification for Nigerian institutional investors. The PhD-level contribution lies in the novel regional asset pricing model, the multi-country empirical design, and the policy-relevant integration diagnostics. Findings are expected to benefit the West African Capital Markets Integration Council, the Central Bank of Nigeria, and ECOWAS policymakers. Keywords: capital market integration, ECOWAS, price discovery, risk sharing, regional finance