Articlegreen2010

Modelling size and illiquidity in West African equity markets

28 citations0/0 files storedApplied Financial Economics

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Financial Risk and Volatility Modeling

Abstract

This article assesses the effectiveness of traded turnover and Amihud (2002 Amihud, Y. 2002. Illiquidity and stock returns: cross section and time series effects. Journal of Financial Markets, 5: 31–56. [Crossref], [Web of Science ®] , [Google Scholar]) 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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1993Common risk factors in the returns on stocks and bonds 1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1991Conditional Heteroskedasticity in Asset Returns: A New Approach 2002Illiquidity and stock returns: cross-section and time-series effects 1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]1959Portfolio Selection: Efficient Diversification of Investments

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