Resumen de Modelling size and illiquidity in West African equity markets

Bruce Hearn, Jenifer Piesse

• This article assesses the effectiveness of traded turnover and Amihud (2002) metrics in measuring illiquidity, as used in a multifactor Capital Asset Pricing Model (CAPM). The performance of this model is contrasted with Generalized Autoregressive Conditional Heteroscedasticity (GARCH) and simple stochastic drift models on a new sample of five West African equity markets: Cote d'Ivoire, Ghana, Nigeria, Morocco and Tunisia, together with the developed markets in London and Paris. Analysis of portfolio characteristics reveals that investment strategies based on Francophone markets outperform those of Anglophone markets in Africa, despite their lower mean returns. There is some evidence of limited benefits to investors from including assets from the small and highly illiquid Cote d'Ivoire and Ghanaian markets.