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

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