Abstract
Beta, as a measure of risk based on market prices of shares, has been widely debated and researched in the strong, semi-strong and weak markets. It has been proved that there is neither negative nor abnormal beta. Past studies rarely considered frontier and infant markets such as Dar es Salaam Stock Exchange (DSE) while studying beta and its behavior. By means of the corresponding closing share prices of 17 companies during a continuous 246-day trading period in 2018 extracted from DSE database, this study examines the trading frequency anomalies in infant markets by testing returns and sensitivity of shares and portfolios. Through computing the betas of DSE traded shares, this study has found many abnormalities. The shares showed infrequent trading like bonds. The prices were constant over a short period of time, and sometimes the shares were not traded at all. Due to this small volatility, the shares showed abnormal behavior which resulted in negative beta sometimes. We concluded that this could be due to two major reasons. Firstly, there is insufficient knowledge on the share market among the East African investors and the public, and secondly, the markets are rather young and the trading platforms and infrastructures are not so well-established. We, therefore, suggest the policy makers to optimize share trading in the region by considering the findings of this study.
Highlights
Portfolio construction is important in infant markets such as Dar es Salaam Stock Exchange (DSE)
The portfolio constructed by random allocation of both share traded frequently and infrequently generates the highest returns
The returns of the portfolio constructed in order of trading frequency are found to increase when infrequently traded shares were added in the portfolio and decreased when frequently traded shares were added in the portfolio
Summary
The inception of Capital Market Theory and Capital Asset Pricing Model (CAPM) introduced by Treynor (1962); Sharpe (1964); Lintner (1965) and Mos-. While CAPM hypothesis claimed a direct positive linear relationship between returns of shares and market returns, studies testing the hypothesis in frontier and infant stock markets show different results. Asymmetric nature of risk was still existed due to the lack of attractiveness of shares listed in, lack of speculative behaviour among investors, tendency of holding stock for long and fearing of getting loss It was stressed by Asad, Khan, & Faiz (2018) that in developing countries, investors were more sensitive to price volatility. Quantitative validation of influence of trading frequency on infant stock markets received limited attention by scholars and practitioners in recent decades. This may be due to the wide gap existed between advanced and infant markets. Section four presents the results and discussion, while section five concludes the paper
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