MBA & MM Theses
Permanent URI for this collectionhttps://wiredspace.wits.ac.za/handle/10539/9084
For information on accessing MBA & MM Theses content please contact Khomotso Chipu via email : Khomotso Chipu or Tel(W) : 011 717 3638
Alternatively contact Patience Mpitsa via email : Patience Mpitsa or Tel (W) : 011 717 3635
Alternatively contact Patience Mpitsa via email : Patience Mpitsa or Tel (W) : 011 717 3635
Browse
Search Results
Item Size- and Book-to-Market Anomalies on the JSE – Testing for the effect of market condition(2011-11-11) Gudde, Christian RudolfThe aim of market investors is to maximise their returns from the market. Often they do this by the use of historical financial (and other relevant) information about companies and their share prices. The search for arbitrage opportunities has led to the identification of anomalies such as the size and book-to-market effects but very little research has gone into the changing of these effects over time. They have generally only been identified over long time periods on markets around the world. This investigation used the returns of portfolios based on market capitalisation or book-to-market ratio (or both) and regression analyses at specific dates at which the market conditions changed from those of a bull market to those of a bear market. This study has shown that magnitude and direction of the size and book-to-market effects change over time and that the market condition (bull or bear) is not a direct indicator of the state of the effect, although it does seem to suggest a lagged impact. The research suggests that there are significant and exploitable differences in portfolios chosen along the lines of market capitalisation or value indicators. Though no causal relationship for the existence of these anomalies has yet been identified, it seems that bear-market conditions have an impact on the magnitude (and direction) of anomalies. Since this impact continues to be seen after the bear markets, this knowledge could be exploited to reduce losses (by disinvesting in stocks that are likely to yield worse results) or even increase gains in portfolios depending on prevailing market conditionsItem THE RELATIONSHIP BETWEEN EXCHANGE RATE AND CONSTRUCTION COMPANY SHARE PRICES(2011-10-20) van Druten, Mark NeilExchange rate fluctuations are believed to affect the value of construction companies with foreign sales and/or operations for various economic reasons. The purpose of this research was to determine the relationship between both the Rand/US Dollar and Rand/Euro exchange rates, and the value of construction companies listed on the JSE Securities Exchange, using correlation analysis. The main finding of the research was that the Murray and Roberts share price is significantly positively correlated with the Rand/Euro exchange rate for weekly and monthly data (delayed response in the share price to exchange rate change). A weakening of the exchange rate in this case corresponded with an increase in the share price, several periods (weeks or months) later. This finding is of importance to investors and fund managers, looking for a Rand-hedge investment in the construction industryItem THE CONTRIBUTION OF REAL OPTIONS TO THE SHARE PRICE OF SASOL LTD(2011-10-07) John, Medard Ivan GopalanBrown (1997: ix) stated: “Fundamental changes were under way in the world of business… The accelerating pace of change is real… With this shift, we are finding many of our background assumptions and time honoured business models inadequate to help us understand what is going on, let alone how to compete”. The purpose of the research was to test real options’ theory in the South African oil and gas sector of the market. The largest listed company by market capitalization in this sector was Sasol. The methodology used to conduct the study consisted of three phases. A detailed review of literature, a case study of Sasol’s GTL operation in Qatar and a survey of all South African market analysts that tracked Sasol’s share price was undertaken. The findings of this report supported the propositions offered by the research that the market value of Sasol did not reflect any embedded real options’, Sasol’s shares were not fully valued, market analysts did not understand the concept of real options’, there was a real option within the Qatari GTL division of Sasol and the GTL industry was embedded with real options’. This report showed that South African market analysts did not use real options’ and that acceptance by market analysts will serve as a catalyst for more widespread corporate use within South Africa.Item The Effect of Dividend Signalling on Earnings and Share Prices in South Africa(2011-05-19) Mohamed, NadimThe dividend information signalling hypothesis is one of the more popular theories that address the questions: “Why do companies pay a dividend?” and “Should the dividend have any effect on firm valuation?”. A key premise of the signalling hypothesis is that the dividend contains information regarding management’s insider view of a firm’s future prospects. As a consequence, investors are expected to revise their valuation of a firm upon the release of news of a substantial change in dividend. Furthermore, the dividend change itself is expected to be positively correlated with future changes in firm performance. This study provides evidence regarding the relevance of the signalling hypothesis for the JSE by measuring both of these consequences. A total of 238 dividend change events were collected for the period 1998-2008. The methodology employed improves on previous South African studies by considering the common practice of declaring dividends together with earnings releases. Regression analysis is used to isolate the effect of only the dividend portion of this joint dividend-earnings signal. It was found that the 2-day cumulative abnormal return on the day of a dividend announcement is positively related to the change in dividend from previous year to announcement year. This implies that the market reacts positively to dividend increases and negatively to dividend decreases. However, changes in earnings in the year following the announcement are, at best, weakly correlated with the observed change in dividend. This finding suggests that the dividend information signalling hypothesis is not a good justification for the observed market reaction to dividend events on the JSE. Other theories such as the Agency Theory might be more successful in explaining this market reactionItem Predictability of share price returns on the JSE(2011-05-11) Lishman, Ryan MarkThis study addresses the issue of shar eprice predictability on the JSE Securities Exchange (JSE) over the 1989 to 2009 period. Th eoverall predictability of the JSE in terms of market indices and individual share prices is examined. The predictability in prices of portfolios formed by ranking shares according to a number of easily observable benchmarks is also investigated. Finally, the study identifies leading indicators of the returns of these ranked portfolios. Using a variance ratio test, the study finds little evidence to reject the hypothesis of uncorrelated increments in the JSA All Share Index or in the returns of individual shares. The study does, however, reject the hypothesis that returns of portfolios ranked according to market capitalization, dividend yield, earning yield, industry and trading volume are serially uncorrelated. Furthermore, the strong rejections of these hypotheses retain their statistical significance in the presence of heteroskedasticity in portfolio returns. In line with the results of previous research, the study finds that serial correlation in portfolios increases as the markets capitalisation and average trading volume of its constituents decrease. Portfolios containing high dividend and earnings yield shares are also found to have a high degree of serial correlation. When ranked according to the industry in which their constituents are classified, portfolios of industrial and retail shares show significant levels of serial correlation. Analyses of he load and lag characteristics of portfolios show that the returns of portfolios consisting of large capitalisation and well traded shares lead those consisting of small capitalisation and thinly traded shares. The economic and staistical significance of the results show a significant deviation from the commonly held view that the JSE is an efficient market. From the point of view of an investor seeking a potential avenue of excee return, the challenge lies in constructing a trading strategy and a portfolio with sufficient serial correlation to be robust to the costs incurred from frequent trading.Item IMPACT OF RESOURCE PRICES AND THE EXCHANGE RATE ON RESOURCE COMPANY SHARE PRICES LISTED ON JSE LTD(2011-05-10) Klasen, Norman BengtIt is believed that resource companies which derive their earnings from selling resources predominantly in foreign currency should be significantly exposed to both the exchange rate and the resource price. The aim of this research was to better explain the exposures facing resource companies listed on the Johannesburg Stock Exchange by including both the exchange rate as well as the underlying resource prices. The study made use of ARIMA modelling to remove each data series relationship with time and correlation analysis to establish if a significant relationship existed. The study was conducted over a three, five and ten year period. The findings indicate that the resource index had a significant relationship with the exchange rate over all three periods and that 53% of resource companies had a significant relationship over the 5 and 10 year periods, this dropped to 35% over the 3 year period. As for the underlying resource prices, it was found that the resource index had a significant relationship over all 3 periods and that 82% of the firms in the study had a significant relationship over the 5 and 10 periods and 76% over the 3 year period.Item Reaction to CEO turnover and share prices(2011-04-13) Grigorov, VladimirThere have been numerous studies investigating the problem of CEO departure and concomitant market reaction around the world. In some instances the market reaction is favourable; in others not. Throughout the various business cycles and economic conditions the quality of management is usually maintained by internal or external mechanisms of governance. A variety of factors, such as the board of directors, the shareholders, and the discipline of the debt markets, put constant pressure on the behaviour of management and the decisions they make (Puffer & Weintrop, 1991:38). In situations where the performance of the management has significantly deviated from the expectations of the market and the shareholders, the departure of the CEO has had a positive effect on the share price. In other instances the voluntary departure, or the unexpected death of a CEO, causes a negative price reaction. The purpose of the research is to assess the relationship between the departure of a company’s CEO and the share price reaction of the South African companies listed on the JSE (JSE Securities Exchange). In this study, in the form of an events study, the researcher calculated the cumulative average abnormal returns in an event window of -7 to +7 days. The population sample comprised 46 CEO departure announcements made by the media, over the past six years (2003-2008). The research aimed at establishing if there was any significant difference in the returns (stock reaction) before and after the announcement. The outcomes of event studies conducted regarding management changes are controversial. For example, Borstadt (1985) finds a negative market reaction to announcements made for managerial departures. Furtado and Rozeff (1987) find the opposite - a positive reaction when there is a new top managerial appointment. Weisbach (1988) finds a positive reaction to the news of the departure of the CEO (excluding those who retire), while Furtado (1986) finds that there is a negative effect on stock prices due to resignation announcements. All these findings can be related to the various hypotheses posited in this study. The findings of this study are as follows: There is a statistically significant move in the cumulative abnormal returns on the day of the announcement of the departure. There is a statistically significant move in the cumulative abnormal returns when there is a sudden departure of a CEO of a company. There is a statistically significant negative abnormal return when there is an insider replacement. At the same time, the research showed that an outside replacement has no effect on the cumulative abnormal returns in a South African company. There is a statistically significant difference in the cumulative abnormal returns when there is no immediate replacement of the ousted CEO in a South African company. There is a statistically significant negative return in the event of the retirement of a CEO. Given the evidence, one can see that with the exception of the outsider replacement scenario, in all other cases there are statistically significant abnormal returns with CEO turnover in South African companies.Item FACTORS INFLUENCING(2011-04-12) Frolich, AntonBlack Economic Empowerment is an important and influential aspect of South Africa’s economy. Firms listed on the Johannesburg Securities Exchange have been engaging in deals aimed at Black Economic Empowerment for a number of years. These deals are typically complex and include many aspects that are of particular interest to the affected shareholders. The recent formalisation of Broad-Based Black Economic Empowerment through legislation and the introduction of sector charters, which embody diverse objectives, have added to the complexity of contemporary deals. This study investigates some of the aspects of these deals that might affect shareholder sentiment about the firms in question and hence those firms’ share prices during the public announcement of deal particulars. The results of this research show a post-announcement negative abnormal return for the total sample of Black Economic Empowerment deal announcements, but this response is shown to be a combination of component responses to specific aspects of the deals studied. The most influential aspects of these deals included: The extent to which the deals are Broad-Based, the possible dilution of shareholders’ equity, the firms’ states of compliance after the deals and the extent to which the firms are dependant on government as a client or for approval.Item PRICING OF SINGLE STOCK FUTURES OPTIONS IN SOUTH AFRICA(2011-03-25) Cameron, Brian"JSE tops all single stock futures markets" (Business Report, July 13, 2007). The Johannesburg Securities Exchange's (JSE) single stock futures market is the largest in the world. This research investigates the forecasting abilities of implied volatility models for South African single stock future options and warrants. Furthermore, the pricing premiums between the two derivative instruments are investigated, as this presents a potential arbitrage opportunity for the market makers of the warrants. Historical volatiity is used as a comparative forecast method to the implied models. The calculated historical and implied volatilities are compared retrospectively to the realised volatility to ascertain which forecasting methodology is superior. Inter-bank implied volatility for single stock futures options is compared to implied volatility for warrants with the same underlying shares to determine pricing premiums. The simple historical volatility model is shown to be a better forecast of realised volatility for both derivatives. Warrants are charged at a significantly higher premium than what the market makers, amongst themselves, are willing to pay for the same underlying shares with single stock futures options.Item SHARE PRICE REACTION TO OPEN MARKET SHARE BUY-BACK ANNOUNCEMENTS IN SOUTH AFRICA(2011-03-22) Blackstock, GreggInternational studies have revealed a favourable market reaction, in terms of positive cumulative abnormal returns, to open market share buy-back announcements. The information signalling hypothesis is largely the attributor of share price response to share repurchases information. Returns of between 2% and 4% have been found in the short-term with repurchase activity in the US accounting for $180 bn annually in terms of transaction value. This Research Report analysed the returns of ordinary shares of companies listed on the JSE Securities Exchange who made open market share buybacks under a general authority. There were 107 share repurchase transactions analysed in this study with no sign of significant abnormal returns discovered in a comparatively small market where only R10 bn worth of open market repurchase activity was studied.