ICEEMDAN-Based Transfer Entropy between Global Commodity Classes and African Equities

ABSTRACT

We examine the information transfer dynamics between global commodity and African equity markets to test their efficiency levels in a denoised transfer entropy approach. Our findings in the short- and medium-term scales lend support to the alternative hypothesis of market efficiency, whereas the transfer entropies at the long-term scale lend support to the efficient market hypothesis and the long-term market efficiency. Investing in a single commodity results in high uncertainty when the return pattern (history) of African equities is acknowledged. Similarly, investing in any single African equity results in high return uncertainty whilst accounting for the history of commodity markets’ returns. Short-term traders could monitor the loopholes in the market efficiency levels between global commodities and African equities to take advantage of arbitrage when needed, whilst long-term investors are assured of efficient market dynamics between global commodity markets and African equities. Regulation of markets may need to strategically incorporate news items as they fall due to either market.