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An increase in the correlation between stock exchange markets raises concerns about the benefits of international portfolio diversification. This study analyzes how investor behavior, specifically passive investment strategy, affects the correlation between Nigeria, South Africa, and Egypt, using different variants of the dynamic conditional correlation (DCC) Model from 2006 to 2021. The correlation coefficient provides evidence of a low correlation between the selected stock exchange markets. However, there is a relatively high correlation between the markets during the global economic and financial crises compared to other periods. In addition, this study provides evidence of volatility interdependence among stock markets. Despite the low correlation between the markets, investors still face risk when there is a shock in any of the markets due to an increase in correlation during a crisis caused by a passive investment strategy. Furthermore, volatility interdependence exists among markets. In the context of policy implications, this study recommends that investors develop a central portfolio base strategy that will reduce the correlation between groups of indexes tracked by passive investors.

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Passive Investment Strategy and the Correlation of Major African Stock Markets

  • 章节

  • 发表日期：

    2025年

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  • Abdulnasir T. Yola,
  • Armaya’u Alhaji Sani,
  • Mujeeb Saif Mohsen Al-Absy,
  • Hussaini Bala,
  • Ghousia Khatoon,
  • Basiru Musa,
  • Isiyaku Musa

摘要

An increase in the correlation between stock exchange markets raises concerns about the benefits of international portfolio diversification. This study analyzes how investor behavior, specifically passive investment strategy, affects the correlation between Nigeria, South Africa, and Egypt, using different variants of the dynamic conditional correlation (DCC) Model from 2006 to 2021. The correlation coefficient provides evidence of a low correlation between the selected stock exchange markets. However, there is a relatively high correlation between the markets during the global economic and financial crises compared to other periods. In addition, this study provides evidence of volatility interdependence among stock markets. Despite the low correlation between the markets, investors still face risk when there is a shock in any of the markets due to an increase in correlation during a crisis caused by a passive investment strategy. Furthermore, volatility interdependence exists among markets. In the context of policy implications, this study recommends that investors develop a central portfolio base strategy that will reduce the correlation between groups of indexes tracked by passive investors.