Asset pricing in African frontier equity markets
Asset pricing in African frontier equity markets
This paper undertakes a horse races style comparison of the efficacy of a range of multifactor asset pricing models in explaining the cross section of stock returns in African securities markets. Valuation factors used include size, book-to-market value, momentum, operating profit, asset growth or investment, liquidity and investor protection. Using monthly returns of 375 blue chip firms from 8 African equity markets over 23 years, we undertake a horse-race style comparison of various classes of augmented CAPM models. We show that both the Fama & French (2015) five factor and Fama & French (2018) six factor framework yield the highest explanatory power. Analysis of costs of equity and optimized portfolio opportunity set simulations reveal substantial differences arising and borne by practitioners from the contrasting application of different asset pricing models underscoring the timely importance of our study.
Africa, Asset pricing, CAPM, Emerging financial markets, Emerging Financial Markets
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Malagila, John K.
cc93732f-b2bd-49c9-843e-4a6039b4124c
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
January 2025
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Tauringana, Venancio
27634458-b041-4bc1-94da-3e031d777e4f
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Malagila, John K.
cc93732f-b2bd-49c9-843e-4a6039b4124c
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Hearn, Bruce, Tauringana, Venancio, Ntim, Collins, Malagila, John K. and Mishra, Tapas
(2025)
Asset pricing in African frontier equity markets.
International Review of Financial Analysis, 97, [103752].
(doi:10.1016/j.irfa.2024.103752).
Abstract
This paper undertakes a horse races style comparison of the efficacy of a range of multifactor asset pricing models in explaining the cross section of stock returns in African securities markets. Valuation factors used include size, book-to-market value, momentum, operating profit, asset growth or investment, liquidity and investor protection. Using monthly returns of 375 blue chip firms from 8 African equity markets over 23 years, we undertake a horse-race style comparison of various classes of augmented CAPM models. We show that both the Fama & French (2015) five factor and Fama & French (2018) six factor framework yield the highest explanatory power. Analysis of costs of equity and optimized portfolio opportunity set simulations reveal substantial differences arising and borne by practitioners from the contrasting application of different asset pricing models underscoring the timely importance of our study.
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Accepted_Manuscript_IRFA_Manuscript_31_10_2024_Africa Asset Pricing USD 27-June-2024
- Accepted Manuscript
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Accepted/In Press date: 31 October 2024
e-pub ahead of print date: 12 November 2024
Published date: January 2025
Keywords:
Africa, Asset pricing, CAPM, Emerging financial markets, Emerging Financial Markets
Identifiers
Local EPrints ID: 496110
URI: http://eprints.soton.ac.uk/id/eprint/496110
ISSN: 1057-5219
PURE UUID: c88a79c7-2541-4b81-978e-e6c3958d8b64
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Date deposited: 04 Dec 2024 17:39
Last modified: 12 Dec 2024 02:56
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