Liquidity Measurement in Frontier Markets
26 Pages Posted: 30 Oct 2012
Date Written: October 30, 2012
Frontier markets, which are countries that have not yet reached emerging market status, have been shown to provide diversification benefits for international investors. However, many stocks in these markets are thinly traded so liquidity is an important consideration. We investigate which liquidity proxies best measure the actual cost of trading in 19 frontier markets that can be accessed by foreign investors. We find that the Gibbs, Amihud, and Amivest proxies have the largest correlation with liquidity benchmarks, while the FHT measure provides the best measure of the magnitude of actual transaction costs.
Keywords: frontier market, liquidity proxy, transaction cost
JEL Classification: G12, G15
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