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

Hearn, Bruce Allen; Piesse, Jenifer

doi:10.2139/ssrn.1262956

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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; University of Bradford - School of Management

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: 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