Pricing Southern African Shares in the Presence of Illiquidity: A Capital Asset Pricing Model Augmented by Size and Liquidity Premiums

Kings College London Department of Management Research Paper No. 47

33 Pages Posted: 5 Sep 2008

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

Date Written: September 3, 2008

Abstract

This paper augments the Fama and French (1993) three-factor model Capital Asset Pricing Model to take account of company size and liquidity levels. These additional risks faced by investors have not been addressed in any formal way and are critical in attracting finance to facilitate growth. The sample includes two of the largest African markets: the Johannesburg and Nairobi Stock Exchanges and two of the smallest: Swaziland and Mozambique. The evidence suggests that while size and liquidity are important valuation factors in the larger markets these measures are undefined and not significant in pricing for the very small markets

Keywords: Sub-Saharan Africa, Capital Asset Pricing Model, Liquidity, Emerging Financial Markets

JEL Classification: G12, O16, O55

Suggested Citation

Hearn, Bruce Allen and Piesse, Jenifer, Pricing Southern African Shares in the Presence of Illiquidity: A Capital Asset Pricing Model Augmented by Size and Liquidity Premiums (September 3, 2008). Kings College London Department of Management Research Paper No. 47. Available at SSRN: https://ssrn.com/abstract=1262956 or http://dx.doi.org/10.2139/ssrn.1262956

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

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

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

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