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Modelling size and illiquidity in West African equity markets

Modelling size and illiquidity in West African equity markets
Modelling size and illiquidity in West African equity markets

This article assesses the effectiveness of traded turnover and Amihud (2002) metrics in measuring illiquidity, as used in a multifactor Capital Asset Pricing Model (CAPM). The performance of this model is contrasted with Generalized Autoregressive Conditional Heteroscedasticity (GARCH) and simple stochastic drift models on a new sample of five West African equity markets: Cote d'Ivoire, Ghana, Nigeria, Morocco and Tunisia, together with the developed markets in London and Paris. Analysis of portfolio characteristics reveals that investment strategies based on Francophone markets outperform those of Anglophone markets in Africa, despite their lower mean returns. There is some evidence of limited benefits to investors from including assets from the small and highly illiquid Cote d'Ivoire and Ghanaian markets.

0960-3107
1011-1030
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Piesse, Jenifer
b85393d2-b4ae-49f2-87cd-8b5007c99e97

Hearn, Bruce and Piesse, Jenifer (2010) Modelling size and illiquidity in West African equity markets. Applied Financial Economics, 20 (13), 1011-1030. (doi:10.1080/09603101003724364).

Record type: Article

Abstract

This article assesses the effectiveness of traded turnover and Amihud (2002) metrics in measuring illiquidity, as used in a multifactor Capital Asset Pricing Model (CAPM). The performance of this model is contrasted with Generalized Autoregressive Conditional Heteroscedasticity (GARCH) and simple stochastic drift models on a new sample of five West African equity markets: Cote d'Ivoire, Ghana, Nigeria, Morocco and Tunisia, together with the developed markets in London and Paris. Analysis of portfolio characteristics reveals that investment strategies based on Francophone markets outperform those of Anglophone markets in Africa, despite their lower mean returns. There is some evidence of limited benefits to investors from including assets from the small and highly illiquid Cote d'Ivoire and Ghanaian markets.

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More information

e-pub ahead of print date: 14 June 2010
Published date: 2010

Identifiers

Local EPrints ID: 423419
URI: http://eprints.soton.ac.uk/id/eprint/423419
ISSN: 0960-3107
PURE UUID: c276d282-29e8-4078-968d-9b985f4ed690
ORCID for Bruce Hearn: ORCID iD orcid.org/0000-0001-9767-0198

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Date deposited: 21 Sep 2018 16:30
Last modified: 11 Mar 2022 02:58

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Contributors

Author: Bruce Hearn ORCID iD
Author: Jenifer Piesse

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