Abstract

This study aims to evaluate the contribution of the African capital markets in the diversification of investment global portfolios. The study used the methodology based on the application of optimization models like mean variance (MV), resample michaud (RM), semi variance (SV), mean absolute deviation (MAD), and filtered historical simulation (FHS). In-sample and out-of-sample approaches were used to analyze the data. The study results suggested the existence of a strong correlation between some African capital markets and global capital markets, that is, they tend to move in the same direction. The most important being the diversification of global portfolio with assets of African capital markets generate benefits for both types of investors,  risk averse and taker investors; that is, it provides benefits in the return and reduce investment risk. Still, the study results suggested that the foreign investors should look for African capital markets with a chance to maximize their wealth and diversify the investment risk in their portfolios. In the same order, the study result went further to elaborate on the advantages of the international diversification and furthermore contributes to the literature through application of the FHS method in the optimization portfolio. This methodology in addition to producing good results, is more restrained in the composition of investment portfolios than the other methods.

Key words: African capital markets, diversification, investment global portfolios.