A reassessment of stock market integration in SADC: The determinants of liquidity and price discovery in Namibia
A reassessment of stock market integration in SADC: The determinants of liquidity and price discovery in Namibia
The New Economic Partnership for Africa's Development (NEPAD) focuses on the benefits of integrating many smaller African markets with South Africa as the central hub, motivated by a wish to attract foreign investment and increase the liquidity. However, little attention has been paid to issues regarding the migration of liquidity and the loss of the price discovery mechanism in an integrated union where one market dominates. This article reviews this policy using the example of Namibia, which is the first market to be fully integrated with South Africa. Several established liquidity constructs are compared to determine their ability to explain the bid-ask spread plus a newly introduced measure of the proportion of daily zero returns, which captures the dynamics of the price discovery process and traders' ability to trade on informational grounds that is found to be more appropriate in highly illiquid frontier markets, such as Namibia. Finally, there is evidence that liquidity (and illiquidity) is closely linked to the rule of law and institutional quality measures of the control of corruption, while the price-discovery process (and hence trader participation in markets) is highly sensitive to the control of corruption, political stability and regulatory quality.
Africa, institutions, integrated financial markets
123-138
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97
January 2013
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97
Hearn, Bruce and Piesse, Jenifer
(2013)
A reassessment of stock market integration in SADC: The determinants of liquidity and price discovery in Namibia.
Applied Financial Economics, 23 (2), .
(doi:10.1080/09603107.2012.711938).
Abstract
The New Economic Partnership for Africa's Development (NEPAD) focuses on the benefits of integrating many smaller African markets with South Africa as the central hub, motivated by a wish to attract foreign investment and increase the liquidity. However, little attention has been paid to issues regarding the migration of liquidity and the loss of the price discovery mechanism in an integrated union where one market dominates. This article reviews this policy using the example of Namibia, which is the first market to be fully integrated with South Africa. Several established liquidity constructs are compared to determine their ability to explain the bid-ask spread plus a newly introduced measure of the proportion of daily zero returns, which captures the dynamics of the price discovery process and traders' ability to trade on informational grounds that is found to be more appropriate in highly illiquid frontier markets, such as Namibia. Finally, there is evidence that liquidity (and illiquidity) is closely linked to the rule of law and institutional quality measures of the control of corruption, while the price-discovery process (and hence trader participation in markets) is highly sensitive to the control of corruption, political stability and regulatory quality.
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e-pub ahead of print date: 7 August 2012
Published date: January 2013
Keywords:
Africa, institutions, integrated financial markets
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Local EPrints ID: 423331
URI: http://eprints.soton.ac.uk/id/eprint/423331
ISSN: 0960-3107
PURE UUID: cb8bfc24-8482-47a1-87a9-aff623951702
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Date deposited: 20 Sep 2018 16:30
Last modified: 16 Mar 2024 04:37
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Author:
Jenifer Piesse
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