Asset pricing in African frontier equity markets

Hearn B., Tauringana V., Ntim C., Malagila J. K., Mishra T.

International Review of Financial Analysis, vol.97, 2025 (SSCI, Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 97
  • Publication Date: 2025
  • Doi Number: 10.1016/j.irfa.2024.103752
  • Journal Name: International Review of Financial Analysis
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit
  • Keywords: Africa, Asset pricing, CAPM, Emerging Financial Markets
  • Open Archive Collection: Article
  • Azerbaijan State University of Economics (UNEC) Affiliated: No

Abstract

This paper undertakes a horse races style comparison of the efficacy of a range of multifactor asset pricing models in explaining the cross section of stock returns in African securities markets. Valuation factors used include size, book-to-market value, momentum, operating profit, asset growth or investment, liquidity and investor protection. Using monthly returns of 375 blue chip firms from 8 African equity markets over 23 years, we undertake a horse-race style comparison of various classes of augmented CAPM models. We show that both the Fama & French (2015) five factor and Fama & French (2018) six factor framework yield the highest explanatory power. Analysis of costs of equity and optimized portfolio opportunity set simulations reveal substantial differences arising and borne by practitioners from the contrasting application of different asset pricing models underscoring the timely importance of our study.