3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Monetary policy and stock market liquidity: empirical evidence from the Johannesburg Stock Exchange (JSE)(2018) Nyika, Patrick. H.e recent financial crisis has given liquidity an important role in the financial market functioning. Especially in small size equity markets like the African, lack of liquidity has been reported as major issue. In order to source the causes of the lack of liquidity, this study investigated the relationship between monetary policy and stock market liquidity in South Africa using fixed and random effect estimations for stock specific effect and VAR impulse response function for portfolio analysis. We first estimate a Taylor rule for South Africa, which we augment with a financial indicator adapted from the literature and use the difference between actual and fitted values to measure monetary stance. The literature on the monetary policy rules in South Africa revealed M3 as the instrument used by the SARB before the period of inflation targeting that started in February 2000. We then used the monetary stance computed from the Taylor rule and the growth rate of M3 as measures of monetary policy. The panel regression analysis, with monetary policy measured by the growth rate of money supply, is only significant in the case of illiquidity models while monetary policy shows no effect on liquidity models in that case. In the case of monetary policy as measured by Taylor rule, the turnover model revealed a negative relationship, but weakly significant. Further, a positive and significant effect at 5% and 10% was revealed for Amihud’s illiquidity measure and Roll’s price impact measure. The impulse response analysis shows different results as compared to the stock specific analysis. The study found that monetary policy, as measured by money supply, has a positive effect on the liquidity variables which are turnover and trading volume; and also found that the monetary policy, as measured by the Taylor monetary stance, has a positive effect on illiquidity variables.Item Capital asset pricing model test on the Johannesburg stock exchange(2018) Mokgele, Kabelo KeosiThe Capital Asset Pricing Model (CAPM), jointly accredited to Markowitz (1952), Treynor (1961), Sharpe (1964), Lintner (1965) and Mossin (1966), provides that, at equilibrium, the return on all risky assets is attributable to their covariance with the market portfolio. This paper studies whether the CAPM holds for the South African market (represented by the Johannesburg Stock Exchange), by using the methodology developed by Fama and Macbeth (1973). Furthermore, the paper expands on other factors that influence asset returns and interrogates alternative asset pricing models. The findings of the study on individual assets rejects CAPM in the context of South Africa. This is consistent with other empirical studies. CAPM is also rejected for the Industrial Index as well as the Top 40 index. What is interesting to note however, is that for the Resources index, CAPM is validated.Item Analysing the efficiency of the Johannesburg Stock Exchange using the magic formula(2018) Vincent, Christopher JohnThis study examined the efficiency of South African markets, namely the Johannesburg Stock Exchange (JSE) through the use of a value investing strategy called the “magic formula”, which was created by Joel Greenblatt and published in his 2006 book “the little book that beats the market”. This study back tested the magic formula on the JSE from 2000 to 2016. It ranked stocks according to the magic formula methodology, using earnings yield and return on capital to derive portfolios. The portfolios were then compared against the JSE All Share Index (the market). The magic formula showed evidence of outperformance of the market over the period, even when accounting for risk. The magic formula was compared against other portfolios derived from value investing ratios, namely ROA, ROE and EY. The ROA portfolio produced the best risk-adjusted results, but all value investing portfolios outperformed the market providing evidence against efficient markets.Item The fama-french five-factor model: evidence from the JSE(2018) Cox, ShaunThe desire to explain the returns of shares listed on stock exchanges has long driven research into asset pricing models. The formation of the Capital Asset Pricing Model (CAPM) served as the starting point for almost all models derived to describe share returns. Further research into returns discovered that there were various risk factors that impacted share returns; these could be captured by market value (size) and the book-to-market ratio (value). In 1993, Eugene Fama and Kenneth French used these to expand on the CAPM. The Fama-French three-factor model created a framework to model returns and allowed for other researchers to explore asset pricing further. In 2015, Fama and French augmented their profitability and investment factors onto their threefactor model. The author of this study postulated that these additional factors may proxy for quality, a formally undefined characteristic of shares that is used in selecting investments. This study tested the effectiveness of the five-factor model and the additional factors in explaining returns on the Johannesburg Securities Exchange (JSE). The five-factor model was compared to the traditional size-value three-factor model as well as other three-factor models that incorporated the additional factors. Furthermore, the study looked at what premiums are present in the returns on the JSE and captured by the various models tested. The results show that the size-value and size-profitability three-factor models best describe time-series returns when comparing models. The five-factor model best explains the crosssection of returns and overall, the results identify a strong inverse size effect and value and market premiums. Interestingly, the strength of the original size-value three-factor model is reinforced. The additional factors of profitability and investment contribute to explaining the returns on the JSE. Furthermore, profitability could be seen as a contributing factor in a “quality premium”. In addition to being a risk factor, quality could also be used as a filter through which the traditional premiums like size or value can be unlocked.Item The determinants of fund performance: does size really matter in South Africa?(2018) Ramos, D.This research seeks to better understand the determinants of fund performance in a South African context. It will focus extensively on fund size, past performance, fees, and expense ratios and their relationship with performance. While other research has shown an inverse relationship between fees and performance, it seems divided on the relationship between fund size and performance in various markets. Due to the high regulatory environment, asset managers in South Africa face multiple restrictions that have limited their investible universe. The results presented in this research show that funds in South Africa exhibit the “Hot Hands” phenomenon as well as it documents the negative relationship between fees and performance for South African funds. Lastly, results show a positive relationship between fund size and performance where funds in South Africa enjoy economies of scale.Item The relationship between equity prices and financial performance of companies qouted on the Johannesburg Stock Exchange(2018) Maceke, Musa WisaniInvestors maximize their wealth by investing in the stock market. The maximization of wealth occurs when the price of a share increases overtime and gets higher than the original price that the investor paid for a share. The objective of this study is to determine the impact of the firm’s operating performance and macroeconomic factors on the share price of companies listed at Johannesburg Stock Exchange (JSE) over the period 2013 to 2017. The study use companies’ financial indicators and macroeconomic factors to determine their influence on share price. Multiple regression analysis was used to test the relationship between dependent variable and independent variables. Regression diagnostic tests were performed to check for multicollinearity and heteroscedasticity in the model. The empirical results show that there is a positive relationship between a JSE share price and return on asset, dividend per share, turnover, liquidity and earnings per share. Therefore, when these variables increase the share price also increases and vice versa. However, research also show that the share price has no significant influence on gross domestic product. The results of the study also show that there is a negative relationship between the share price and consumer price index on the JSE. Thus, when consumer price index increases, the JSE share prices decrease.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.