Resumen de Size and liquidity effects in African frontier equity markets

Bruce Hearn

• This study contrasts the effectiveness of the Capital Asset Pricing Model (CAPM) against more recent augmented variants including size and book-to-market factors (Fama and French, 1993), liquidity (Liu, 2006) as well as both size and liquidity factors of Martinez et al. (2005) in explaining average returns in industry portfolios across Sub Saharan Africa (SSA) excluding South Africa. This draws on a unique sample set of stocks from main board of Mauritius, local Namibian market, Botswana, Kenya, Nigeria, Ghana and Cote d�Ivoire's BRVM. The evidence suggests that both size and liquidity factors are important in explaining average returns which is supported by extending the analysis using time varying coefficient Kalman filter techniques that reveal liquidity effects in all SSA markets while substantial size effects are present in Namibia and Zambia.