African stock market returns and liquidity premia

We investigate the association between African real stock returns and stock liquidity for sixteen countries over the years 1995-2010. Using fixed effect models (FEM) and system generalized method of moments (SGMM), stock returns and liquidity measures are positively related when South Africa is excluded from the sample, making liquidity "priced in" these less liquid markets. The discount rate (MSCI world index return) is negatively (positively) related with African stock returns. Overall, the results on controls are more robust in dynamic panels: equity markets respond negatively to local currency appreciation, consistent with the export-commodity nature of many of these countries. (C) 2014 Elsevier B.V. All rights reserved.