The Costs and Opportunities for Portfolio Diversification in Southern Africa's Smallest Equity Markets
South African Journal of Economics, Vol. 76, No. 3
36 Pages Posted: 23 Jul 2008 Last revised: 7 Aug 2011
Date Written: July 20, 2008
This paper contrasts the performance of three time series models, a simple stochastic drift, GARCH, and time varying parameter CAPM, for the three very small SADC equity markets of Namibia, Swaziland, Mozambique, and South Africa. Analysis of the characteristics of portfolios containing each respective small market and South Africa reveal the level of integration through the shape of optimized portfolio frontiers, the costs of the smaller states implementing a minimum investment retention levy of 30%, and the optimal holdings of an investor holding the minimum variance portfolio. Namibia is found to exhibit the greatest degree of integration with South Africa, followed by Swaziland with Mozambique much further behind. The evidence suggests that the investors in the smaller markets would face considerable additional costs should a policy be adopted indicating that such a levy should be carefully considered.
Keywords: Portfolio Choice, Asset pricing, International Financial Markets, Sub-Saharan Africa
JEL Classification: G11, G12, G15, O55
Suggested Citation: Suggested Citation