3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Sectorial herding: evidence from the JSE(2017) Mekwa, Itumeleng EskiaThis study investigates the existence of herd behaviour within the Johannesburg Stock Exchange (JSE) and three sectorial indices using monthly closing prices for all shares listed on the JSE for the period 31 January 2003 to 31 May 2016. No evidence of herding was found on either the JSE or in any of its sectors during the sample period. Furthermore, no evidence of herding was found during bull and bear markets within the sample period.Item A comparison of returns of portfolios formed using technical analysis and fundamental analysis in South Africa(2017) Dingile, SimiloIn a market where it has become difficult to find value, it has become very important for portfolio managers and analyst to find approaches to investing that still hold value and are less correlated with market returns. In this research project a strategy, which combines technical analysis strategies and fundamental analysis strategy was studied to find out if it is possible for an investor who uses both strategies to earn better returns than an investor who relies only on one strategy. Three technical analysis strategies were combined to form one strategy. The three strategies were also studied separately so as to see if they produce returns that are significantly better than a fundamental analysis strategy that uses Piotorski’s (2002) F_score approach to invest. It was found that individual technical analysis strategies do not produce returns that are significantly better that the fundamental analysis strategy. However, it was found that a strategy that uses both fundamental analysis and technical analysis produces average returns that are better than average returns produced by any of these strategies used independently. Technical analysis strategies produced returns that showed very little correlation with an equally weighted benchmark when regressed on the CAPM. Equally weighted portfolios of the strategies showed no conclusive evidence of the presence of abnormal returns. The success rate of the technical analysis strategies was found to decline over time, which suggested that the Johannesburg Stock Exchange (JSE) is becoming weak form efficientItem Liquidity and the convergence to market efficiency(2017) Young, Nicara RomiThe aim of this study is to investigate the relationship between market liquidity changes on the Johannesburg Stock Exchange (JSE), and the market’s degree of efficiency. Market efficiency is characterised in terms of two philosophies: Fama’s (1970) Efficient Markets Hypothesis, and Shiller’s (1981; 2003) informational efficiency designation. Efficiency was tested using measures of return predictability, a random walk benchmark, and price volatility; liquidity was measured using market turnover. The tests were conducted on JSE Top 40 shares across three regimes, spanning January 2012 – June 2016. The regimes are demarcated by two structural breaks in the JSE’s microstructure: the 2012 trading platform upgrade, and the 2014 colocation centre launch. The results show that past order imbalances are a significant predictor of daily returns, although the significance of this predictability has dissipated over time. Return predictability is not influenced by liquidity. In fact, there is evidence that illiquidity weakens return predictability. Prices were closer to random walk benchmarks during the third regime. In consideration of informational efficiency, during the latter two regimes price volatility is greater during trading versus non-trading hours. This is coupled with an emergence of nonlinear return dependence, which is indicative of greater mispricing. Thus, over the three regimes, market efficiency improved in the sense of the EMH, but informational efficiency deteriorated. The study contributes to the field by: introducing an inverse measure of market efficiency; providing insight into the measure’s time variation and relation to liquidity; and demonstrating that market efficiency tests should incorporate its dual meanings, enabling richer understanding of their intersection.Item Liquidity and size effects on the JSE(2017) McKane, GraemeThis study tests the efficacy of the liquidity variables of Liu (2006) in determining the existence of a liquidity premium on the South African market and finds evidence of a significant liquidity effect. This factor is determined to be robust and to proxy for a different underlying effect than the Fama-French (1992) effects and the market risk premium. The analysis is performed through portfolio sorts and tests for difference of portfolio means, as well as both a univariate and multivariate regression analysis. The sample period covers 16 years from 2000 to 2015. The relationship between size and liquidity is clear, however liquidity is found to be separate from the size effect. This study recommends the use of a liquidity-augmented model for the analysis of asset returns in South Africa.Item Does the index matter? A comparison of the capital structures of firms listed on the AltX to those listed on the JSE(2017) Sebastian, AvaniThis study investigates whether there is a significant difference between the capital structures of firms listed on the JSE’s main board and those listed on the AltX. The factors influencing the differences are also explored in detail. Non-financial firms listed on the JSE and AltX respectively between 2011 and 2015 were chosen for the study. A panel data regression model was used and five measures of leverage were tested. The findings indicate that the exchange on which a firm is listed has an impact on its capital structure, with firms listed on the AltX having significantly higher levels of leverage than those listed on the JSE’s main board. In support of the pecking order theory, AltX firms are found to be more likely to draw on their internal funds as a first source of finance, even though they are generally less profitable than JSE firms and have less internal funds available. Moreover, AltX firms are found to be more reliant on more accessible short term financing than JSE firms, making them more susceptible to liquidity risks. This higher risk is congruent with the finding that the availability of tangible assets to offer as collateral appears to be a more significant determinant of leverage for AltX firms. The AltX was established to support growth of small and medium enterprises (SMEs) by enabling access to finance. Thus despite the establishment of the AltX, SMEs still face considerable constraints to accessing capital. Keywords: Capital structure, AltX, JSE, SME, information asymmetryItem An in-depth validation of momentum as a dominant explanatory factor on the Johannesburg Stock Exchange(2017) Page, Moshe DanielThis study considers momentum in share prices, per Jegadeesh and Titman (1993, 2001), on the cross-section of shares listed on the JSE. The key research objective is to define whether momentum is significant, independent and priced. ‘Significant’ implies that momentum produces significantly positive nominal and risk-adjusted profits, ‘independent’ means that momentum is independent of other non-momentum stylistic factor premiums and finally, ‘priced’ suggests that momentum is a priced factor on the JSE and thereby contributes to the cross-sectional variation in share returns. In order to determine the significance of the momentum premium on the JSE, univariate momentum sorts are conducted that consider variation in portfolio estimation and holding periods, weighting methodologies as well as liquidity constraints, price impact and microstructure effects. The results of the univariate sorts clearly indicate that momentum on the JSE is both significant and profitable assuming estimation and holding periods between three and twelve months. Furthermore, consistent with international and local literature, momentum profits reverse assuming holding periods in excess of 24 months. In order to determine whether momentum is independent, bivariate sorts and time-series attribution regressions are conducted using momentum and six non-momentum factors, namely: Size, Value, Liquidity, Market Beta, Idiosyncratic Risk and Currency Risk. The results of the bivariate sorts and time-series attribution regressions clearly indicate that momentum on the JSE is largely independent of the nonmomentum stylistic factors considered. Lastly, cross-sectional panel regressions are conducted where momentum is applied, in conjunction with the considered non-momentum factors, as an independent variable in order assess the relationship between the factors and expected returns on a share-by-share basis. The results of the panel data cross-sectional regressions clearly indicate that momentum produces a consistently significant and independent premium, conclusively proving that momentum is a priced factor that contributes to the cross-sectional variation in share returns listed on the JSE.Item Does the accrual anomaly exist on the JSE?(2017) Camden-Smith, Michael ThomasUtilising the seminal work of Sloan (1996) this study investigates the accrual anomaly in South Africa. Utilising all firms listed on the All Share Index (ALSI) for the period 2002 to 2016, this study employs various tests surrounding the accrual anomaly. A regression analysis highlights a low persistence of earnings and the popular Mishkin (1983) test fails to prove a sufficient market reaction following changes in earnings. Accruals could pre-empt dramatic changes in future earnings but the observed stock price adjustment was only implicit in firms that suffered a drop in earnings. Additionally, the presence of post-earnings announcement drift (PEAD) meant the market reaction following an earning’s announcement was gradually reflected in the stock price. The accrual anomaly relies on an overreaction following an earning’s surprise in the month that financials are released. All the previously mentioned meant that a simple fundamental-based (cash flow) investment strategy far outperformed a strategy based on earnings’ fixation (accruals). This study failed to find conclusive evidence of the accrual anomaly on the JSE.Item Effect of co-location in the Johannesburg Securities Exchange (JSE)(2016) Sachikonye, Panashe John LloydCo-location on the JSE took place on the 14th of May 2014. This dissertation looks at the impact this event has had on the market. In order to measure the effects of colocation, market quality factors are examined before and after the event to see whether there were any significant changes. A regression is then undertaken to see the correlation between co-location, liquidity and volatility. Our results suggest that colocation benefits market liquidity but we are unable to assess the relationship with volatility. This means that the growing liquidity in the market can be used to attract more institutions and firms wishing to run trading algorithms and strategies. Trades originally meant for dark pools can be now traded on the JSE co-location servers. By moving trades from dark pools to co-location servers at the JSE and encouraging institutions to use these facilities, transparency can be increased. Exchanges should implement kill switches if it is apparent that they are being impaired or flooded with erroneous orders. The deployment of kill switches, circuit breakers and other system compliance will improve investor confidence and market stability. Subsequent research can lead to better understanding by investigating the correlation between colocation and volatility.Item An assessment of the environmental sustainability guidelines and requirements set by international stock exchanges(2017) Urdang, Brandon CraigEnvironmental reporting is largely voluntary for companies, unlike financial reporting which has well set standards for measurement, reporting, auditing and governing laws based on IFRS and GAAP. A driver such as a stock exchange is able to act as a “regulating body” that requires a minimum reporting standard for companies listed on the stock exchange. Stock exchanges have an ethical responsibility to encourage companies listed with them to be environmental stewards to provide investors with responsible investment opportunities. This study provides an understanding of the quality of environmental guidelines presented by international stock exchanges compared to key global environmental concerns. The aim of this dissertation was to assess and compare sustainability guidelines provided by selected stock exchanges, with specific focus on key global environmental concerns. The objectives were (1) to assess the existing environmental reporting requirements of 19 stock exchanges across all continents, (2) to determine how the JSE environmental reporting guidelines compared to those of other stock exchanges, (3) to compare 20 JSE listed companies’ environmental reports based on the presence and quality of data, (4) to compare what companies reported to what the JSE required and (5) to identify possible differences in reporting between the impact levels and industries of companies. A Sustainability Balanced Scorecard (SBSC) was developed by identifying seven key global environmental concerns (resources; biodiversity; water; energy; emissions, pollution and waste; products and services; and supply chain management) that were common themes from the MEA (2005) and UNEP Ecosystem Management policy (2010). A five tier scoring system specific to assessing reporting guidelines and another five tier scoring system specific to assessing company environmental reports were used. Nineteen stock exchange guidelines were assessed to represent both developing and developed countries and all regions (Africa, America, Australasia and Europe). Overall, the stock exchange guidelines addressed the key global environmental concerns rather poorly. There were no differences in the quality of guidelines for stock exchanges that recommended guidelines in developing or developed countries. There were no differences found in the guidelines of stock exchanges operating in different regions. There were differences in the focus on key global environmental concerns by the guidelines. The environmental information reported by twenty companies spanning three impact levels and seven industries was also assessed. The companies in the high and medium impact levels iv reported similarly and better than the companies in the low impact levels. There were differences found in the way companies reported according to the different industries as well as differences in the way companies addressed the key global environmental concerns. Even though the JSE’s developed guidelines did not account for resources and biodiversity, the Global Reporting Initiative (GRI) reporting guidelines that the JSE recommended to their listed companies covered these categories. Companies reported voluntarily on the categories because they may understand the importance of managing resources and biodiversity for the sustainability of their business. Stock exchanges are faced with a variety of companies at different impact levels representing different industries, making it difficult to provide a minimum set of environmental reporting guidelines. Stock exchanges should require companies to report on all key global environmental concerns identified in this study, but should not dictate how the companies report on them. Global environmental reporting standards may be better suited with a global sustainability body like the Global Sustainability Standards Board (GSSB) that is able to provide global standards for all companies. Companies need to change the way that they do business, the benefits of reporting on environmental performance outweigh the risks of not reporting and managing these impacts. Sustainability reporting and best practise today may be the compliance of the future. Stakeholders are increasingly expecting companies to contribute more to environmental sustainability. Companies are essential in building a resilient planet that will be able to feed a growing population that will increase from seven to nine billion people by 2050. Key words: Environmental Sustainability; Johannesburg Stock Exchange; Millennium Ecosystem Assessment; Sustainability Balanced Score Card Approach; United Nations Environment Programme Ecosystem Management PolicyItem Agent-based learning for pattern matching in high-frequency trade data(2017) Loonat, FayyaazPreviousresearchofsequentialinvestmentstrategiesforportfolioselectionhaveshownthatthereare strategies that exist that can beat the best stock in the market. In this dissertation, an algorithm is presented that uses a nearest neighbour approach similar to the one used by Gy¨orfi et al [20, 21, 22]. Theapproachishoweverextendedtoincludezero-costportfoliosandusesaquadraticapproximation, instead of an optimisation step, to determine how capital should be allocated in the portfolio based on the neighbours that have been found. A portfolio that results in an increase in the investor’s capitalandcomparesfavourablytocertainbenchmarks,suchasthebeststock,indicatesthatthereare patternsinthetimeseriesdata. Otherfeaturesofthealgorithmpresentedistoallowforthedatatobe clustered by a selection of stocks or partitioned based on time. The algorithm is tested on synthetic datasetsthatdepictdifferentmarkettypesandisshowntoaccuratelydeterminetrendsinthedata. The algorithm is then tested on real data from the New York Stock Exchange (NYSE) and data from the JohannesburgStockExchange(JSE).Theresultsofthealgorithmfromtherealdatasetsarecompared to implemented versions of past strategies from the literature and compares favourably.