Liquidity estimation in African emerging markets

African emerging equity market returns are characterized by volatile, but substantial returns, which are affected considerably by varying degrees of liquidity cost ranging from 0.15% in Morocco to 53.37% in Tunisia. Many of the markets are dominated by a smaller group of blue chip stocks and intra-market liquidity differences can be extreme with differences greater than 100% in South Africa between the market aggregate and the constituents of the prestigious JSE Top 40 index. Using firm-level bid-ask quoted prices for six African markets of Morocco, Tunisia, Egypt, Kenya, BRVM and South Africa as well as two European markets of London and Paris the evidence suggests that the percentage of zero daily returns price rigidity measure and the Liu (2006) trading speed constructs perform better at representing inter and intramarket liquidity effects than price-impact measures such as Amihud (2002)