A Reassessment of Stock Market Integration in SADC: The Determinants of Liquidity and Price Discovery in Namibia

17 Pages Posted: 19 Nov 2012

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: November 19, 2012


The New Economic Partnership for Africa’s Development focuses on the benefits to integration of many smaller African markets with South Africa as the central hub motivated by a wish to attract foreign investment and increase liquidity. However, little attention has been paid to issues regarding migration of liquidity and loss of the price discovery mechanism in a integrated union where one market dominates. This paper reviews this policy using the example of Namibia, which is the first market to be fully integrated with South Africa. Several established liquidity constructs are compared to determine their ability to explain the bid-ask spread plus a newly introduced measure of the proportion of daily zero returns which captures the dynamics of the price discovery process and traders’ ability to trade on informational grounds that is found to be more appropriate in highly illiquid frontier markets such as Namibia. Finally there is evidence that liquidity (and illiquidity) is closely linked to the rule of law and control of corruption institutional quality measures, while the price-discovery process and hence trader participation in markets is highly sensitive to the control of corruption, political stability and regulatory quality.

Keywords: Integrated financial markets, institutions, Africa

JEL Classification: G14, G15, N27

Suggested Citation

Hearn, Bruce Allen and Piesse, Jenifer, A Reassessment of Stock Market Integration in SADC: The Determinants of Liquidity and Price Discovery in Namibia (November 19, 2012). Applied Financial Economics, Vol. 23, 2013. Available at SSRN: https://ssrn.com/abstract=2178070

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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