Stock Liquidity and Stock Valuation in Sub-Saharan African Frontier Financial Markets: Proposal for an Exploratory Research Design (Revue Internationale des Sciences de Gestion)

Summary

• The paper outlines a research proposal to examine the relationship between stock market liquidity and equity valuation in four Sub-Saharan African frontier markets: BRVM, NSE, NGX, and GSE [p.2].p.2
• Frontier markets in Sub-Saharan Africa often feature bid-ask spreads reaching 10% to 12% of stock prices [p.3].p.3
• The paper cites evidence showing that the transition to continuous trading at BRVM in 2013 effectively doubled trading volumes [p.7].p.7
• The quantitative scope focuses on data from 2015 to 2024 across four target frontier exchanges [p.14].p.14
• The qualitative methodology proposes conducting 24 to 36 semi-structured interviews across five key market actor categories [p.15].p.15
• A meta-analysis referenced in the literature review synthesizes 632,000 observations across 428 studies regarding liquidity, governance, and performance [p.7].p.7

Key insights

1. The existence of an illiquidity premium remains empirically disputed in Sub-Saharan African frontier markets compared to developed exchanges.p.3
2. High ownership concentration and institutional buy-and-hold strategies significantly limit the available free float in African frontier markets.p.3
3. Delisting is framed as a secondary outcome of prolonged illiquidity and persistent valuation discounts rather than an independent explanatory variable.p.9
4. The study suggests five explanatory factors shaping stock valuation: stock liquidity, shareholder governance, foreign investor openness, exchange-rate risk, and financial integration.p.2
5. Qualitative data collection relies on theoretical saturation, targeting 6 to 9 interviews per exchange across five distinct participant categories.p.15
6. The quantitative phase avoids immediate causal econometric regressions, prioritizing descriptive multivariate techniques such as exploratory factor analysis and clustering.p.18
7. To handle missing composite index liquidity data, median imputation is recommended when fewer than half of the components are missing, and winsorization is applied at 1% and 99%.p.21
8. The paper hypothesizes that market liquidity influences investor expectations like Tobin's Q more directly than historic accounting metrics like the PER.p.23