Sector level cost of equity in African financial markets

Abstract

This paper assesses the effectiveness of Liu (2006) metrics in measuring illiquidity within a multifactor CAPM pricing model. Costs of equity are estimated using this model for the major sectors within Africa's larger equity markets: Morocco, Tunisia, Egypt, Kenya, Nigeria, Zambia, Botswana and South Africa. In all countries, the cost of equity is found to be highest in the financial sector and lowest in the blue chip stocks of Tunisia, Morocco, Namibia and South Africa. At an aggregate level, Nigeria and Zambia have the highest cost of capital.

A reassessment of stock market integration in SADC: the determinants of liquidity and price discovery in Namibia

“…the proportions of issued shares not held by block-shareholders and thus freely available for trading) are generally between 20% and 30%, with the exception of Namibia Breweries and Namibia Harvest Investments. While these freefloats are not as low as in the Swazi and Mozambique markets, which are under 10% (Hearn and Piesse, 2009), they are still considerably lower than in South Africa (NSX, 2006;Bloomberg, 2009). While all the listed NSX firms have shareholders well in excess of the minimum 150 requirement, the vast majority have a fractional holding only.…”

Time varying size and liquidity effects in South Asian equity markets: A study of blue-chip industry stocks

“…The Dhaka exchange is the largest and most liquid of the two markets and supports two barometer indices: the DSE All Share and investor-orientated DSE-20 (DSE website, 2010). Table 1 shows that in common with similar smaller emerging markets (see Hearn and Piesse (2009)) there is considerable concentration of both capitalization and traded value with the single largest stock accounting for 46.17% of capitalization and 39.32% of traded value. The top five stocks account for 78.13% of capitalization and 72.69% of traded value providing further evidence of the small and highly skewed nature of the trading profile of the DSE.…”

“…It is multi-dimensional and captures effects relating to trading speed, trading quantity and trading cost, with an emphasis on trading speed, defined as the continuity of trading and the potential delay in executing an order (Liu, 2006). An additional benefit from this measure arises is its robustness in the presence of significant illiquidity (Liu, 2006), again as is often present in emerging markets (Hearn & Piesse, 2009).…”

The liquidity cost implications arising from the attraction of regional primary listings: Evidence from West Africa

“…Hearn and Piesse (2009) and Nigeria alongside a further nine SSA equity markets and found that Lesmond, Ogden and Trzcinska (1999), henceforth LOT, proportion of daily zero returns indicator and to a lesser extent the multidimensional liquidity measure introduced by Liu (2006) are closely associated with total trading costs. The Hearn and Piesse (2013) study also introduced a unique series of controls to account for the impact on liquidity and transactions costs arising from the involvement of state, foreign partners, retained entrepreneurial founders, domestic and foreign venture capitalists within focal firm's organizational structure and ownership and finally whether firm is part of an extended family network or business group.…”