Size, Liquidity and Value Effects in African Frontier Equity Markets

37 Pages Posted: 12 Jan 2010 Last revised: 4 Jun 2011

Date Written: November 27, 2010


This study contrasts the effectiveness of the capital asset pricing model (CAPM) against more recent augmented variants including size and book-to-market factors (Fama and French, 1993), liquidity (Liu, 2006) as well as both size and liquidity factors of Martinez et al (2005) in explaining average returns in industry portfolios across Sub Saharan Africa (SSA) excluding South Africa. This draws on a unique sample set of stocks from main board of Mauritius, local Namibian market, Botswana, Kenya, Nigeria, Ghana and Cote d’Ivoire’s BRVM. The evidence suggests that both size and liquidity factors are important in explaining average returns which is supported by extending the analysis using time varying coefficient Kalman filter techniques that reveal liquidity effects in all SSA markets while substantial size effects are present in Namibia and Zambia.

Keywords: Liquidity, CAPM, Kalman filter, Emerging Financial Markets, Sub Saharan Africa

JEL Classification: G11, G12, G15, O55

Suggested Citation

Hearn, Bruce Allen, Size, Liquidity and Value Effects in African Frontier Equity Markets (November 27, 2010). Applied Financial Economics, 2011, Available at SSRN:

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

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

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