Modelling size and illiquidity in West African equity markets

This paper assesses the effectiveness of traded turnover and Amihud (2002) metrics in measuring illiquidity, as used in a multifactor CAPM. The performance of this model is contrasted with 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 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.