The relevance of global sector influence in African sector portfolios

Abstract

Purpose

The purpose of this paper is to examine the relative importance of global sector effects in African sector portfolios (ASPs). It explores the dynamics of the rate of change and the level of global sector effects in their respective ASPs.

Design/methodology/approach

The variance of African industry returns is decomposed to the component attributable to the corresponding global industry and the proportion that is African industry specific. The authors then scale the global component by the African sector-specific component to obtain the relative global sector influences in their corresponding ASP returns.

Findings

The evidence suggests that global sector effects are dominated by African industry-specific influences on the African markets; however, in the recent period the global sector influence has risen in importance. Additionally, the 2008 Global Financial Crisis had significant impact in the relative global sector effects in the ASPs. Turning points in the rate of change of and the relative importance of the corresponding global sector effects in the ASPs are identified. The findings infer time-varying global sector effects in their respective ASPs. The evidence suggests sector-level differences in the diversification gain of the ASPs.

Originality/value

The ASPs offer global investors the opportunity for diversification gains when included in geographically diversified portfolio within the same sector, although, global sector effects on the African markets have increased recently.

Citation

Boamah, N.A. (2017), "The relevance of global sector influence in African sector portfolios", African Journal of Economic and Management Studies, Vol. 8 No. 2, pp. 205-220. https://doi.org/10.1108/AJEMS-02-2016-0015