Liquidity measurement in frontier markets

•We investigate which liquidity proxies best measure the actual cost of trading in 19 frontier markets.•We find that frontier markets are relatively illiquid.•The Gibbs, Amihud, and Amivest proxies have the largest correlation with liquidity benchmarks.•The FHT measure provides the best measure of the magnitude of actual transaction costs.

Frontier markets which are countries that have not yet reached emerging market status, have been shown to provide diversification benefits for international investors. However, many stocks in these markets are thinly traded so liquidity is an important consideration. We investigate which liquidity proxies best measure the actual cost of trading in 19 frontier markets that can be accessed by foreign investors. We find the Gibbs, Amihud, and Amivest proxies have the largest correlation with liquidity benchmarks, while the FHT measure provides the best measure of the magnitude of actual transaction costs.