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Which factors explain African stock returns?

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  • Mbengue, Mohamed Lamine
  • Ndiaye, Bara
  • Sy, Oumar

Abstract

We use returns across 13 African stock markets to perform factor-spanning tests. Contradicting US-based results, HML is not redundant in the five-factor model, UMD generates a reliable alpha in the Q-based regression, and the mispricing-purged SMB does not consistently dominate the other SMB factors. Because they cannot explain HML and UMD, the Q and Q5 models do not subsume the five- and six-factor models. Since none of the other models captures the ROE factor, the Q-factor model is never subsumed. The Q model spans the Q5 model because the expected growth factor rEG is not priced in African markets.

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  • Mbengue, Mohamed Lamine & Ndiaye, Bara & Sy, Oumar, 2023. "Which factors explain African stock returns?," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001782
    DOI: 10.1016/j.frl.2023.103805
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    More about this item

    Keywords

    Asset-pricing models; Factor-spanning tests; African stock markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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