Reviving Beta? Another look at the cross-section of average share returns on the JSE

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dc.contributor.author Page, Daniel
dc.date.accessioned 2012-07-05T06:36:33Z
dc.date.available 2012-07-05T06:36:33Z
dc.date.issued 2012-07-05
dc.identifier.uri http://hdl.handle.net/10539/11613
dc.description.abstract Van Rensburg and Robertson (2003a) stated that the CAPM beta has little or no relationship with returns generated by size and price to earnings sorted portfolios. This study intends to demonstrate that a reformulated CAPM beta, estimated using return on equity as opposed to share returns, unravels the size and value premium. The study proves that the “cash-flow” generated beta partially explains the cross-sectional variation in share returns when measured over the long run, specifically when portfolios are sorted on book to market, however the cash flow beta is less successful when attempting to explain the small size premium. The premise of the study is that the cash flow dynamics of share returns eventually dominate the first and second moments and thus result in cash flow based measures of risk and return that should succeed in explaining the cross-sectional variation in share returns. The study makes use of vector autoregressive models in order to examine the short term effect of structural shocks to the cash flow fundamentals of a stock or portfolio through impulse response functions as well as quantifying a long-term relationship between cash flow fundamentals and share returns using a VECM specification. The study further uses fixed effects, random effects and GMM/dynamic panel data cross-sectional regressions in order to examine the ability of the cash flow beta explaining the value and size premium. The results of the study are mixed. The cash flow beta does well in explaining the returns of portfolios sorted on book to market, but fails to do the same with size sorted portfolios. In the cash flow betas favour, it performs far better than the conventionally measured CAPM beta throughout the study. en_ZA
dc.language.iso en en_ZA
dc.subject Shares en_ZA
dc.subject CAPM en_ZA
dc.subject Capital asset pricing model en_ZA
dc.subject Johannesburg Stock Exchange en_ZA
dc.subject Cash flow en_ZA
dc.subject Stocks en_ZA
dc.title Reviving Beta? Another look at the cross-section of average share returns on the JSE en_ZA
dc.type Thesis en_ZA


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