Market Liquidity and Stock Size Premia in Emerging Financial Markets

This paper estimates the cost of equity in South Africa, Kenya, Egypt and Morocco as well as the UK. Active investor participation in emerging markets is contingent on solid regulation and corporate governance that provide transparency in information and equity prices. Costs of equity, taking account of firm size and illiquidity, enable comparison of transactions costs between markets. The evidence suggests a clear distinction between markets with different levels of regulation and corporate governance. The UK and South Africa have the lowest cost of equity followed by Egypt and Morocco and then Kenya, where the fledgling AIMS market has the highest value.