A reassessment of stock market integration in SADC: the determinants of liquidity and price discovery in Namibia

Hearn, Bruce and Piesse, Jenifer (2013) A reassessment of stock market integration in SADC: the determinants of liquidity and price discovery in Namibia. Applied Financial Economics, 23 (2). pp. 123-138. ISSN 0960-3107

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Abstract

The New Economic Partnership for Africa’s Development (NEPAD) focuses on the benefits of integrating many smaller African markets with South Africa as the central hub, motivated by a wish to attract foreign investment and increase the liquidity. However, little attention has been
paid to issues regarding the migration of liquidity and the loss of the price discovery mechanism in an integrated union where one market dominates. This article reviews this policy using the example of Namibia, which is the first market to be fully integrated with South Africa. Several established liquidity constructs are compared to determine their ability to explain the bid–ask spread plus a newly introduced measure of the proportion of daily zero returns, which captures the dynamics of the price discovery process
and traders’ ability to trade on informational grounds that is found to be more appropriate in highly illiquid frontier markets, such as Namibia. Finally, there is evidence that liquidity (and illiquidity) is closely linked to the rule of law and institutional quality measures of the control of
corruption, while the price-discovery process (and hence trader participation in markets) is highly sensitive to the control of corruption, political stability and regulatory quality

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance
Depositing User: Bruce Hearn
Date Deposited: 13 Nov 2012 13:32
Last Modified: 07 Mar 2017 09:22
URI: http://sro.sussex.ac.uk/id/eprint/42135

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