Faculty of Science (ETDs)

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Browsing Faculty of Science (ETDs) by Author "Ajoodha, Ritesh"

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    Applying Machine Learning to Model South Africa’s Equity Market Index Price Performance
    (University of the Witwatersrand, Johannesburg, 2023-07) Nokeri, Tshepo Chris; Mulaudzi, Rudzani; Ajoodha, Ritesh
    Policymakers typically use statistical multivariate forecasting models to forecast the reaction of stock market returns to changing economic activities. However, these models frequently result in subpar performance due to inflexibility and incompetence in modeling non-linear relationships. Emerging research suggests that machine learning models can better handle data from non-linear dynamic systems and yield outstanding model performance. This research compared the performance of machine learning models to the performance of the benchmark model (the vector autoregressive model) when forecasting the reaction of stock market returns to changing economic activities in South Africa. The vector autoregressive model was used to forecast the reaction of stock market returns. It achieved a mean absolute percentage error (MAPE) value of 0.0084. Machine learning models were used to forecast the reaction of stock market returns. The lowest MAPE value was 0.0051. The machine learning model trained on low economic data dimensions performed 65% better than the benchmark model. Machine learning models also identified key economic activities when forecasting the reaction of stock market returns. Most research focused on whole features, few models for comparison, and barely focused on how different feature subsets and reduced dimensionality change model performance, a limitation this research addresses when considering the number of experiments. This research considered various experiments, i.e., different feature subsets and data dimensions, to determine whether machine learning models perform better than the benchmark model when forecasting the reaction of stock market returns to changing economic activities in South Africa.
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    Regime Based Portfolio Optimization: A Look at the South African Asset Market
    (University of the Witwatersrand, Johannesburg, 2023-09) Mdluli, Nkosenhle S.; Ajoodha, Ritesh; Mulaudzi, Rudzani
    Financial markets change their properties (i.e mean, volatility, correlation, and distribution) with time. However, traditional portfolio optimization strategies seek to create static, all weather portfolios oblivious to this and current economic conditions. This produces portfolios that are unable to predict events with excessive skewness and kurtosis. This research investigated the difference in portfolio percentage return, of portfolios that incorporate regimes against one that does not. HMMs, binary segmentation, and PELT algorithms were used to identify regimes in 7 macro-economic features. These regimes, with regimes identified by the SARB, were incorporated into Markowitz’s mean-variance optimization technique to optimize portfolios. The base portfolio, which did not incorporate regimes, produced the least return of 761% during the period under consideration. Portfolios using HMMs identified regimes, produced, on average, the highest returns, averaging 3211% whilst the portfolio using SARB identified regimes returned 1878% during the same period. This research, therefore, shows that incorporating regimes into portfolio optimization increases the percentage return of a portfolio. Moreover, it shows that, although HMMs, on average, produced the most profitable portfolio, portfolios using regimes based on data-driven techniques do not always out-perform portfolios using the SARB identified regimes.