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Sector level cost of equity in African financial markets

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  • Hearn, Bruce
  • Piesse, Jenifer
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    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Emerging Markets Review.

    Volume (Year): 10 (2009)
    Issue (Month): 4 (December)
    Pages: 257-278

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    Handle: RePEc:eee:ememar:v:10:y:2009:i:4:p:257-278

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    Web page: http://www.elsevier.com/locate/inca/620356

    Related research

    Keywords: Africa Capital asset pricing model Liquidity Emerging financial markets;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Maureen O'Hara, 2003. "Presidential Address: Liquidity and Price Discovery," Journal of Finance, American Finance Association, vol. 58(4), pages 1335-1354, 08.
    2. Luboš Pástor & Robert F. Stambaugh, . "Liquidity Risk and Expected Stock Returns," CRSP working papers 531, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    3. Lopez-de-Silanes, Florencio & La Porta, Rafael & Shleifer, Andrei, 2008. "The Economic Consequences of Legal Origins," Scholarly Articles 2962610, Harvard University Department of Economics.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
    5. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    6. Jenifer Piesse & Bruce Hearn, 2005. "Regional Integration Of Equity Markets In Sub-Saharan Africa," South African Journal of Economics, Economic Society of South Africa, vol. 73(1), pages 36-52, 03.
    7. Shum, Wai Cheong & Tang, Gordon Y.N., 2005. "Common risk factors in returns in Asian emerging stock markets," International Business Review, Elsevier, vol. 14(6), pages 695-717, December.
    8. Collins, Daryl & Abrahamson, Mark, 2006. "Measuring the cost of equity in African financial markets," Emerging Markets Review, Elsevier, vol. 7(1), pages 67-81, March.
    9. Lavelle, Kathryn C., 2001. "Architecture of Equity Markets: The Abidjan Regional Bourse," International Organization, Cambridge University Press, vol. 55(03), pages 717-742, June.
    10. Martinez, Miguel A. & Nieto, Belen & Rubio, Gonzalo & Tapia, Mikel, 2005. "Asset pricing and systematic liquidity risk: An empirical investigation of the Spanish stock market," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 81-103.
    11. Lesmond, David A., 2005. "Liquidity of emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 411-452, August.
    12. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    13. Kent Daniel & Sheridan Titman, 1996. "Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," NBER Working Papers 5604, National Bureau of Economic Research, Inc.
    14. Mishra, Dev R. & O'Brien, Thomas J., 2005. "Risk and ex ante cost of equity estimates of emerging market firms," Emerging Markets Review, Elsevier, vol. 6(2), pages 107-120, June.
    15. Liu, Weimin, 2006. "A liquidity-augmented capital asset pricing model," Journal of Financial Economics, Elsevier, vol. 82(3), pages 631-671, December.
    16. Samy Ben Naceur & Samir Ghazouani, 2007. "Asset Pricing and Cost of Equity in the Tunisian Banking Sector: Panel Data Evidence," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(1), pages 89-113, 02.
    17. Jenifer Piesse & Bruce Hearn, 2002. "Equity market integration versus segmentation in three dominant markets of the Southern African Customs Union: cointegration and causality tests," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1711-1722.
    18. Jefferis, Keith, 1995. "The Botswana share market and its role in financial and economic development," World Development, Elsevier, vol. 23(4), pages 663-678, April.
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    Cited by:
    1. Lischewski, Judith & Voronkova, Svitlana, 2012. "Size, value and liquidity. Do They Really Matter on an Emerging Stock Market?," Emerging Markets Review, Elsevier, vol. 13(1), pages 8-25.
    2. Hearn, Bruce, 2010. "Time varying size and liquidity effects in South Asian equity markets: A study of blue-chip industry stocks," International Review of Financial Analysis, Elsevier, vol. 19(4), pages 242-257, September.
    3. Hearn, Bruce, 2014. "The liquidity cost implications arising from the attraction of regional primary listings: Evidence from West Africa," Research in International Business and Finance, Elsevier, vol. 30(C), pages 91-110.
    4. Dey, Malay K. & Wang, Chaoyan, 2012. "Return spread and liquidity: Evidence from Hong Kong ADRs," Research in International Business and Finance, Elsevier, vol. 26(2), pages 164-180.
    5. Grandes, Martin & Panigo, Demian T. & Pasquini, Ricardo A., 2010. "On the estimation of the cost of equity in Latin America," Emerging Markets Review, Elsevier, vol. 11(4), pages 373-389, December.

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