The Opportunities and Costs of Portfolio Diversification in Southern Africa’s Smallest Equity Markets

Abstract

This paper contrasts the performance of three time series models, a simple stochastic drift, GARCH, and a time varying parameter CAPM for four SADC equity markets in Namibia, Swaziland, Mozambique, plus South Africa. Analysis of the portfolio characteristics containing each reveals the level of integration from the optimised portfolio frontiers and the implications of the smaller states adopting a minimum investment retention levy. Namibia is found to exhibit the greatest degree of integration with South Africa, followed much further behind by Swaziland with Mozambique. The evidence suggests that investors in the smaller markets would face considerable additional costs should such a policy be adopted.

Keywords: South Africa; Eswatini; Namibia; Mozambique; Integrated financial markets