An Augmented Capital Asset Pricing Model: Liquidity and Stock Size in African Emerging Financial Markets

34 Pages Posted: 9 Feb 2022

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: February 9, 2008

Abstract

This paper uses the illiquidity measure of Amihud (2002) in forming illiquidity estimates for South Africa, Kenya, Morocco, Egypt and London. These are used within an augmented CAPM framework to form risk firm illiquidity premiums in addition to premiums attributable to firm size. The evidence suggests that London and Johannesburg have the lowest cost of equity followed by Morocco and Egypt. While Kenya has the highest cost of equity the costs associated with a Main board listing are less than one third than those encountered on the fledgling Alternative Investment Market raising policy questions concerning the development of alternative markets

Keywords: Africa, Capital Asset Pricing Model, Liquidity, Emerging Financial Markets

JEL Classification: G12, G15, O16

Suggested Citation

Hearn, Bruce Allen and Piesse, Jenifer, An Augmented Capital Asset Pricing Model: Liquidity and Stock Size in African Emerging Financial Markets (February 9, 2008). Available at SSRN: https://ssrn.com/abstract=4030711 or http://dx.doi.org/10.2139/ssrn.4030711

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

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

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
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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