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

Abstract

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

Hearn, Bruce Allen, The Costs and Opportunities for Portfolio Diversification in Southern Africa's Smallest Equity Markets (July 20, 2008). South African Journal of Economics, Vol. 76, No. 3. Available at SSRN: https://ssrn.com/abstract=1163942

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

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