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Size and liquidity effects in African frontier equity markets

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  • Bruce Hearn

Abstract

This study contrasts the effectiveness of the Capital Asset Pricing Model (CAPM) against more recent augmented variants including size and book-to-market factors (Fama and French, 1993), liquidity (Liu, 2006) as well as both size and liquidity factors of Martinez et al . (2005) in explaining average returns in industry portfolios across Sub Saharan Africa (SSA) excluding South Africa. This draws on a unique sample set of stocks from main board of Mauritius, local Namibian market, Botswana, Kenya, Nigeria, Ghana and Cote d’Ivoire's BRVM. The evidence suggests that both size and liquidity factors are important in explaining average returns which is supported by extending the analysis using time varying coefficient Kalman filter techniques that reveal liquidity effects in all SSA markets while substantial size effects are present in Namibia and Zambia.

Suggested Citation

  • Bruce Hearn, 2012. "Size and liquidity effects in African frontier equity markets," Applied Financial Economics, Taylor & Francis Journals, vol. 22(9), pages 681-707, May.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:9:p:681-707
    DOI: 10.1080/09603107.2011.621881
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    Cited by:

    1. Butt, Hilal Anwar & Demirer, Riza & Sadaqat, Mohsin & Suleman, Muhammad Tahir, 2022. "Do emerging stock markets offer an illiquidity premium for local or global investors?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 502-515.
    2. Hearn, Bruce, 2014. "The liquidity cost implications arising from the attraction of regional primary listings: Evidence from West Africa," Research in International Business and Finance, Elsevier, vol. 30(C), pages 91-110.
    3. Kuttu, Saint, 2014. "Return and volatility dynamics among four African equity markets: A multivariate VAR-EGARCH analysis," Global Finance Journal, Elsevier, vol. 25(1), pages 56-69.
    4. Bruce Hearn & Jenifer Piesse, 2015. "The Impact of Firm Size and Liquidity on the Cost of External Finance in Africa," South African Journal of Economics, Economic Society of South Africa, vol. 83(1), pages 1-22, March.
    5. Hearn, Bruce, 2013. "Size and liquidity effects in Nigeria: an industrial sector study," MPRA Paper 47975, University Library of Munich, Germany.
    6. Hearn, Bruce & Piesse, Jenifer, 2013. "Firm level governance and institutional determinants of liquidity: Evidence from Sub Saharan Africa," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 93-111.

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