3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item The effect of sector diversification on SA REIT Returns(2020) Monyela, OfentseWith the introduction of REIT legislature in South Africa in 2013, investors are encouraged to invest in South African REITs as they are now comparable with REITs internationally. This report assesses the effect of sector diversification on South African REIT returns and value. The findings show that there is no statistically significant difference between the return on assets of diversified REITs and specialised REITs, which is in line with Ziobrowski & Ro (2009), however the findings reveal that specialised REITs are better valued by the market than diversified REITs, mirroring the results of Capozza & Seguin (1999) who found that value is reduced by sector diversification and Lang & Stulz (1994) who found that diversified companies trade at a discount to undiversified firms and have the lowest Tobin’s Q ratios. We also find that specialised REITs have statistically significant higher gearing than diversified REITs and this does not align with the findings of Lewellen (1971) who is in support of diversification, contending that diversified companies achieve higher leverage (Lewellen, 1971). In terms of risk we find that diversified REITs’ Tobin’s Q values and return on assets are more volatile than that of specialised REITs, however when we adjust for risk through the coefficient of variation we find that the ROA for diversified REITs has greater dispersion than that of specialised REITs. Specialised REITs also outperform the market over the sample period whilst diversified REITs slightly underperform when compared to the market, although specialised REITs’ share price returns are more volatile than those of diversified REITs when not adjusted for risk. We find that specialised REITs were mostly invested in retail property over the sample period, which has contributed to the value and outperformance. We find that the worst performing REITs over the sample period were mostly invested in the office sector. This research report contributes to the body of knowledge in South Africa and will aid analysts making diversification decisions and encourage them to rather maximise value by investing in a number of specialised REITs than investing in diversified REITsItem Entrepreneurial orientation amongst Collective Investment Schemes (CIS): transition to venture capital service in South Africa Africa(2019) Mokoka, LesibaLiterature shows that there is limited research on Entrepreneurial Orientation (EO) in the Middle East, Latin America, and Sub-Saharan African countries. At the same time, despite its potential as a source of finance for entrepreneurship, stokvels are still shaped by their cultural roots, where the majority still function under the old operating model of rotating funds amongst its members and grocery purchases. The purpose of the study was to assess the impact of EO on Collective Investment Scheme’s capability to invest in a new product, entering an established market or investing in a new venture. The study used a positivism research philosophy, and the research design was based on a cross-sectional approach. The target population for this study was limited to investment stokvel groups in Gauteng that were founded for purely investment purpose. An online survey questionnaire was used as a method of data collection, with 131 members from different Collective Investment Schemes responding to the survey. The results from the study indicated that new entry plays a mediating role in the relationship between the three dimensions of EO (innovativeness, risk-taking, and competitive aggressiveness) and business performance (profit and efficiency) of Collective Investment Schemes. This research contributes to the literature as it illustrated Collective Investment Schemes’ ability to anticipate, pursue and exploit entrepreneurial opportunities that exist in the environment. It also affirmed the application of EO theory in a different cultural setting and that it remains an active driver of business performance.Item Algorithmic trading, market quality and information : a dual -process account(2017) Gamzo, Rafael AlonOne of the primary challenges encountered when conducting theoretical research on the subject of algorithmic trading is the wide array of strategies employed by practitioners. Current theoretical models treat algorithmic traders as a homogenous trader group, resulting in a gap between theoretical discourse and empirical evidence on algorithmic trading practices. In order to address this, the current study introduces an organisational framework from which to conceptualise and synthesise the vast amount of algorithmic trading strategies. More precisely, using the principles of contemporary cognitive science, it is argued that the dual process paradigm - the most prevalent contemporary interpretation of the nature and function of human decision making - lends itself well to a novel taxonomy of algorithmic trading. This taxonomy serves primarily as a heuristic to inform a theoretical market microstructure model of algorithmic trading. Accordingly, this thesis presents the first unified, all-inclusive theoretical model of algorithmic trading; the overall aim of which is to determine the evolving nature of financial market quality as a consequence of this practice. In accordance with the literature on both cognitive science and algorithmic trading, this thesis espouses that there exists two distinct types of algorithmic trader; one (System 1) having fast processing characteristics, and the other (System 2) having slower, more analytic or reflective processing characteristics. Concomitantly, the current microstructure literature suggests that a trader can be superiorly informed as a result of either (1) their superior speed in accessing or exploiting information, or (2) their superior ability to more accurately forecast future variables. To date, microstructure models focus on either one aspect but not both. This common modelling assumption is also evident in theoretical models of algorithmic trading. Theoretical papers on the topic have coalesced around the idea that algorithmic traders possess a comparative advantage relative to their human counterparts. However, the literature is yet to reach consensus as to what this advantage entails, nor its subsequent effects on financial market quality. Notably, the key assumptions underlying the dual-process taxonomy of algorithmic trading suggest that two distinct informational advantages underlie algorithmic trading. The possibility then follows that System 1 algorithmic traders possess an inherent speed advantage and System 2 algorithmic traders, an inherent accuracy advantage. Inevitably, the various strategies associated with algorithmic trading correspond to their own respective system, and by implication, informational advantage. A model that incorporates both types of informational advantage is a challenging problem in the context of a microstructure model of trade. Models typically eschew this issue entirely by restricting themselves to the analysis of one type of information variable in isolation. This is done solely for the sake of tractability and simplicity (models can in theory include both variables). Thus, including both types of private information within a single microstructure model serves to enhance the novel contribution of this work. To prepare for the final theoretical model of this thesis, the present study will first conjecture and verify a benchmark model with only one type/system of algorithmic trader. More formally, iv a System 2 algorithmic trader will be introduced into Kyle’s (1985) static Bayesian Nash Equilibrium (BNE) model. The behavioral and informational characteristics of this agent emanate from the key assumptions reflected in the taxonomy. The final dual-process microstructure model, presented in the concluding chapter of this thesis, extends the benchmark model (which builds on Kyle (1985)) by introducing the System 1 algorithmic trader; thereby, incorporating both algorithmic trader systems. As said above: the benchmark model nests the Kyle (1985) model. In a limiting case of the benchmark model, where the System 2 algorithmic trader does not have access to this particular form of private information, the equilibrium reduces to the equilibrium of the static model of Kyle (1985). Likewise, in the final model, when the System 1 algorithmic trader’s information is negligible, the model collapses to the benchmark model. Interestingly, this thesis was able to determine how the strategic interplay between two differentially informed algorithmic traders impact market quality over time. The results indicate that a disparity exists between each distinctive algorithmic trading system and its relative impact on financial market quality. The unique findings of this thesis are addressed in the concluding chapter. Empirical implications of the final model will also be discussed.Item Cash holding levels and performance of JSE-listed firms(2017) Maleka, MMThe purpose of this research is to carry out an empirical study into the determinants of cash and the relationship between the levels of cash holdings and performance by South African listed non-financial firms. Plots were used to identify trends of cash holding at both a market and an industry level. The study used Generalised Method of Moments “GMM” to examine the relationships, and the analysis was also carried out controlling for factors such as primary listing in SA vs non SA, firms listed on the JSE main board vs AltX, pre- vs post-2008 credit crisis, firm size quartile and industry. The study found a significant negative relationship between cash and asset tangibility ratios, capital expenditure, and firm size irrespective of the control variable under study, whilst leverage ratio remains an insignificant determinant of cash holdings by firms throughout. The significance of the cashflow volatility is the strongest amongst large firms and amongst firms in the Consumer Services industry. The study also found a significant positive relationship between performance and cash for both the operating and market performance measures under the baseline data, which is contrary to the agency theory that excess cash erodes value. However, the results changed when constraining the analysis to cash-rich firms, where an insignificant positive relationship was found between cash and operating performance, but a significant positive relationship between cash and market performance. These conflicting results show that in the presence of good form of corporate governance, excess cash holding may not necessarily erode shareholder value.Item Performance determinants of local currency bond markets in African emerging economies(2016) Ahwireng-Obeng, Shirley AsabeaGenerating sufficient domestic revenues to finance economic growth has been a critical hurdle for many African countries and, for decades, foreign capital has complemented domestically generated resources to finance growth. However, global financial crises over the past few decades tend to curtail, if not dry up the flow of capital to African governments. The unreliability of foreign capital with its attendant strings and sudden stops in the event of economic and political crisis has spurred the need for alternative sources of financing development. Despite the realisation that bond markets provide a viable source of funds for the African continent, the literature on the importance of bond market development and its interaction with other sources of funding remains underexplored. Moreover, the sparse empirical literature about bond market development in Africa is vague and largely overlooked. At the same time, knowledge of African bond markets is vital for channelling funds not only to efficient agents in particular, but also for fostering transparency and the flow of information within the continent’s capital markets. This thesis endeavours to address the vacuum apparent in extant literature and proposes a theoretical framework through a thorough assessment of the determinants of bond market development in African emerging market economies. The thesis examines four critical pillars of bond market development: (a) the environment for the creation of bond markets; (b) the relative performance and characteristics of bond markets across and within developing and developed economies; (c) the modelling of bond markets and (c) the institutional factors that underpin the efficient functioning of bond markets. Using macroeconomic, social, institutional and historical data on local currency bond markets from 26 African economies and 49 listed firms, this thesis extends previous studies on bond market determinants through tighter robustness measures by accounting for downside risk in a generalized methods of moments (GMM) and a feasible generalized least squares estimator (FGLSE) framework. Further, differential analysis of government and corporate bond markets are carried out, given their different investment horizons and issuance. The results suggest that from a macroeconomic perspective, inflation, central government debt, GDP, external debt, GDP per capita and fiscal balance are important drivers of local currency bond market development in African economies. Moreover, political unrest, governance, religion, former colonial ties and culture are institutional factors that exert statistically significant effects on local currency bond market performance in Africa. From a demand viewpoint, the study finds that firm level factors that influence bond market performance are firm risk, size, profitability and age. The results from this study are of importance to capital market participants, investors, regulators and policy makers who seek to address the perennial constraints to development occasioned by lack of capital. A number of policy measures for boosting bond market performance such as stable macroeconomic environments, reform of capital market rules and cross listing are discussed in the final chapter. JEL CLASSIFICATION: International Economics; Financial Economics; Economic Development; Innovation; Technological Change; and Growth. KEYWORDS: Africa; Emerging economy; Bond market; Institutions; Local Currency Bond Market; Performance; Development.Item Investigating emerging market economies Reverse REIT-Bond Yield Gap anomalies: a case for tactical asset allocation under the multivariate Markov regime switching model(2017) Videlefsky, Daryn MichaelThis paper presents a first time application of a variant of the concepts underpinning the Fed Model, amalgamated with the Bond-Stock Earnings Yield Differential, by applying it to the dividend yields of REIT indices. This modification is termed the yield gap, quantitatively constructed and adapted in this paper as the Reverse REIT-Bond Yield Gap. This metric is then used as the variable of interest in a multivariate Markov regime switching model framework, along with a set of three regressors. The REIT indices trailing dividend yield and associated metrics are the FTSE/EPRA NAREIT series. All data are from Bloomberg Terminals. This paper examines 11 markets, of which the EMEs are classified as Brazil, Mexico, Turkey and South Africa, whereas the advanced market counterparts are Australia, France, Japan, the Netherlands, Singapore, the United Kingdom, and the United States. The time-frame spans the period June 2013 until November 2015 for the EMEs, whilst their advanced market counterparts time-span covers the period November 2009 until November 2015. This paper encompasses a tri-fold research objective, and aims to accomplish them in a scientifically-based, objective and coherent fashion. Specifically, the purpose is in an attempt to gauge the reasons underlying EMEs observed anomalies entailing reverse REIT-Bond yield gaps, whereby their tenyear nominal government bonds out-yield their trailing dividend yields on their associated REIT indices; what drives fluctuations in this metric; and whether or not profitable tactical asset allocation strategies can be formulated to exploit any arbitrage mispricing opportunities. The Markov models were unable to generate clear-cut, definitive reasons regarding why EMEs experience this anomaly. Objectives two and three were achieved, except for France and Mexico. The third objective was also met. The REIT-Bond Yield Gaps static conditions have high probabilities of continuing in the same direction and magnitude into the future. In retrospection, the results suggest that by positioning an investment strategy, taking cognisance of the chain of economic events that are likely to occur following static REIT-Bond Yield Gaps, then investors, portfolio rebalancing and risk management techniques, hedging, targeted, tactical and strategic asset allocation strategies could be formulated to exploit any potential arbitrage profits. The REIT-Bond Yield Gaps are considered highly contentious, yet encompasses the potential for significant reward. The Fed Model insinuates that EME REIT markets are overvalued relative to their respective government bonds, whereas their advanced market counterparts exhibit the opposite phenomenon.Item 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.Item Analysis of key value drivers for differing value performance of major mining companies for the period 2006 - 2015(2017) MacDiarmid, Jack AugustusThe period from 2006 to 2015 was a turbulent one for mining companies. The end of the 2000s commodity super cycle resulted in all-time high market values for most commodity based companies, followed by a rapid decline in value with the onset of the Global Financial Crisis in 2008 and a similar rapid recovery following this. Whilst much of this change in value was driven by commodity prices, the inconsistent performance between companies suggests that there are other factors affecting mining company value. To determine the key drivers of company value, four diversified and international mining companies which represent close to 50% of the 2006 industry revenue were selected for analysis. These were Anglo American, BHP Billiton, Rio Tinto and CVRD-Vale. Financial and production data was collected to analyse different potential value drivers. Because of its suitability for comparison of company value, the market based valuation approach was selected as the company valuation technique. Enterprise value (EV) was the metric used for company value since this provides a measure of the real market value of a firm as a whole business. Eight potential value drivers, which include production output, commodity price, revenue, EBITDA margin, EBITDA multiple, gearing ratio, net debt to EBITDA ratio and ROCE, were selected for analysis. Each potential value driver was tracked against EV to determine if there was any correlation between the value driver and EV. Also, the Pearson correlation method was used to determine correlation between each potential value driver and EV. Production output and commodity price in isolation were found not to drive company value. However, when combined to calculate revenue, had a very high correlation to EV with an average Pearson coefficient of 0.8. EBITDA multiple was also found to be a key driver of company value, with this metric closely aligned to revenue (Pearson coefficient of 0.6). The two debt metrics, gearing ratio and net debt to EBITDA were found to only have a correlation to EV in times of declining commodity prices and revenue. EBITDA margin and ROCE were found to have no correlation to EV and as such were not considered to be key drivers of company value. Mining companies must ensure that they focus on the correct value drivers to ensure those they influence do impact the company value.Item Empirical determination of equity markets investability: guide for African countries(2016) Garg, PriyaForeign investment, both in the form of direct, long-term and portfolio flows, is necessary for the development of countries. Fund managers are regulated to allocate funds from their portfolios to countries that are in Emerging Market Indices, following the guide laid out by MSCI and Standard & Poor Dow Jones Indices. Accordingly, countries that graduate into these indexes are defined as ‘investable’. This study examined the underlying factors that both foreign direct and portfolio investors consider when making investments. The factors were then regressed against the countries that had graduated into the emerging market indices to determine which characteristics are necessary for qualification into the index. The sample size included 22 countries common to MSCI and S&P Dow Jones Emerging Market Indices and 28 countries that were economically similar but did not qualify for entry into the index. The study revealed that inflation has negatively correlated with the odds of a country’s graduation into the index. Additionally, of the different types of infrastructure considered, human capital had the largest marginal impact on a country’s investability, while taxation laws and foreign exchange were found to be statistically insignificant. Political stability was found to be negatively correlated with the country’s odds of graduation. Lastly, foreign investors preferred investing in countries with higher sovereign credit rankings and placed high emphasis on the size of financial markets. Policy makers of countries that intend to graduate into the emerging market indices should therefore place emphasis on macroeconomic stability of their economies. They should aim to develop resources, through development of human capital. Finally, they should aim to improve and maintain their credit ratings over time.