3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Target price accuracy: South African equity market(2019) Sebele, PotsoMuch that has been studied around target prices has generally revealed weak prediction ability on individual analysts’ level. In this report, we pursue an unprecedented approach and analyse consensus target price forecasting ability. Like past academic works, we conclude that, consensus target price accuracy in forecasting future market share price is inadequate, with consistent prediction errors that are fairly auto-correlated. We also discovered that target price prediction errors are correlated to earnings forecast errors suggesting that the latter is underpinned by earnings forecast. Regarding our last objective, we found out that prediction errors are positively related to implicit return, earnings per share and price per book value but negatively related to market capitalisation of companies.Item Enhanced indexation of South African equities: a co-integration analysis(2017) Modungwa, Dineo NtshadiThis study presents an analysis of cointegration based tracking strategies; a classical index tracking strategy and a long-short equity market neutral tracking strategy. The first strategy attempted to track a reconstructed index, whilst the second strategy attempted to track an enhanced index. Quantitative portfolio managers have traditionally used the concept of correlation to analyse co-movements, which over years evolved into conditional correlation. In contrast, this study applied cointegration rather than correlation in portfolio optimisation. The concept of cointegration relies on the long-run relationship between time series i.e. stock prices and an index. The data that was used was the price history of the JSE Top 40 market index and its constituent stocks for the period 02/11/2009 - 31/12/2015. The study found that it was only the designed tracking portfolio of 10 stocks that was sufficiently cointegrated with the index (JSE Top 40), albeit at higher volatility at various times in the out of sample period and performance that slightly lagged the index even before accounting for transaction costs. As far as the enhanced index tracking strategy based on cointegration, the study found no convincing empirical evidence for the South African equities market. Further research should be done to test the robustness of the cointegration based index tracking strategies under different market conditions and its applicability within sophisticated trading strategies and stock selection methodologies.Item Performance evaluation of smooth bonus funds(2018) Mokoena, KortmanThe article examines whether the average risk adjusted return of Smooth Bonus funds outperform average risk adjusted return of traditional funds. The Smooth Bonus fund has been in existence in South Africa for 50 years and was firstly launched by Old Mutual in 1967. The fund has grown substantial over the years with a value of over R150 billion between Old Mutual, Metropolitan & Momentum Investment and Sanlam by the end of 2016 reporting, however no work has been done to evaluate Smooth Bonus funds. It’s a saving vehicle for the purpose of saving for retirement and / or saving for specific goal. It guarantee inflation beating returns, protection of initial investment (80% - 100% depending on the provider) and Investor pay Guarantee fee on annual basis. The purpose of this research is to educate ordinary South African on Smooth Bonus fund. Also to present an analytical performance evaluation of such funds and to provide answers, or at least guidelines, to such questions as the following: What is a Smooth Bonus funds? How are the returns distributed to investors? What is the difference between Smooth Bonus funds and Traditional funds? How do smooth bonus funds perform against traditional funds in South African market? The annual sample data are collected for four Smooth Bonus fund and four Traditional fund from Old Mutual and Liberty life for the years 2003 – 2017 which are sold in South Africa. The funds in the sample report returns on an annually basis net of all fees and expenses. A number of methods are used including Sharper ratio and Independent Sample T-test. Sharpe ratio is used to calculate risk adjusted return then use independent sample t-test to test the hypothesis that Smooth Bonus funds Sharpe ratio mean is less or equal traditional funds Sharpe ratio mean for 5, 10 and 15 year term. The results shows that average risk adjusted return of Traditional funds performed better than average risk adjusted return of Smooth Bonus funds for 5, 10 and 15 years maturity. In addition, the results were inconsistent with the previous studies that Traditional funds were better performer for 10 year term while smooth bonus fund were better performer for 15 years term. However the previous studies comapred unadjusted risk returns. The implication of this finding is that fees, expenses and broker commision are were ignored for this study and the results maybe different depending on the all fees charged and fee structure. The study evaluated performance by grouping Smooth Bonus fund and Traditional fund to form two portfolios while the individual Smooth Bonus fund generated better risk adjusted return.Item Market intergration and currency risk pricing in chinese mainland and equity market: evidence from Shanghai-Hong Kong stock connect(2018) Lei, WeiThis paper investigates the two topics of market integration and currency risk pricing in the Chinese mainland equity market. It also examines the impact of liberalization policies, including currency reform and Shanghai-Hong Kong Stock Connect on the two topics. This paper employs both an unconditional multi-beta pricing model under the International Arbitrage Pricing Theory framework, and a conditional pricing model using the multivariate GARCH-in-Mean setup. Using both monthly data and weekly data covering the period through January 2001 to September 2017, I find both world market risk and Chinese local market risk are positively priced in the Chinese mainland equity market, providing evidence of partial integration. A weak upward trend is detected for the low correlation between the Chinese mainland equity market and the world market. Currency risk is found to be negatively priced with a time-varying price. While world market risk and currency risk constitute essential components of the long-run total risk premium in the Chinese mainland equity market, local risks remain the dominant source in determining the short-run variations in the total risk premium. A structural shift in risk pricing is detected after the currency reform for both world market risk and currency risk, making the positive price of world market risk more positive and the negative price of currency risk even more negative. Although foreign participation has increased rapidly after Shanghai-Hong Kong Stock Connect, there are no significant changes observed in the pricing process. These findings suggest that international investors can still enjoy diversification benefit from the Chinese mainland equity market because of the low level of correlation and partial integration, but they must pay enough attention to the local source of risks and currency risk, and follow closely further liberalization policies.Item Testing the Fama-French five-factor model in selected emerging and developed markets(2017) Mosoeu, SelebogoThe focus of this research is on testing the adequacy of the Fama and French fivefactor model in explaining the patterns in average stock returns for selected developing markets, and developed markets. Further tests are conducted in evaluating the performance of the five-factor model in explaining returns for diversified portfolios. With the proposition that there is some form of relationship between the asset’s expected returns and market risk, the Capital Asset Pricing Model (CAPM) serves as a cornerstone for the asset pricing models. The evolution of the market over the years resulted in other factors being discovered that related to the asset’s expected returns. This led to the development of the three-factor model and later the five-factor model. The performance of the five-factor model depends on the region upon which it is being tested, especially for emerging markets, although the global five-factor model fails dismally as compared to the emerging market five-factor model. Across all the countries studied, the market premium (Mkt) is redundant, except for India and South Korea, together with some of the other factors depending on the country. For Indonesia, Mkt is the only redundant factor for explaining the patterns in average returns for the sample period.Item What factors drive analyst forecasts in South Africa?(2017) Dada, SameeraThis research examines through the use of survey data which key factors around a companies‟ industry positioning, strategic decisions and internal qualitative capabilities, are considered by financial analysts when preparing their financial forecasts. The research covered buy-side and sell-side analysts in South Africa. The results were however found to be non-conclusive and did not align to previous research on this matter. Comparisons between analysts covering the same company were performed with consistencies found on average across all variables. It is interesting to note that when a detailed analysis and comparison was performed by individual variable for analysts covering the same company, different views on some of the variables were identified between buy-side and sell-side analysts, therefore supporting the research obtained during the literature review. It was found based on the tests performed that the factors which have an impact on forecasted financials relate to superior product/service strategy, innovation and ability to execute strategy. These variables were however noted not to be consistent across all the financial forecast factors and are contradictory to the research highlighted in the literature review as well as the outcomes of the original study, ie. There are additional factors which are considered important. Further research is recommended on analyst behaviour in South Africa.Item The optimally diversified equity portfolio in South Africa: an artificial intelligence approach(2017) Block, Aaron EliyahuDiversification has remained a central tenet in investment theory over multiple decades due to its demonstrated value as a risk mitigation technique. Increasing the number assets in a portfolio, where the magnitude of correlation is relatively slim, increases the amount of diversification while also encountering increased costs in the form of transaction costs, taxes and the like. Thus, it is imperative to solve for the optimal point of diversification to ensure an investor does not encounter unnecessary costs. This study aims to solve for the point of optimal diversification in an equity portfolio, focusing on the South African environment. This is achieved by employing a framework using both the traditional simulation method as well as more advanced mathematical techniques, namely: genetic programming and particle swarm optimisation. Marked improvements are realised in this study with regards to the methodology and results through the application of advanced mathematical approaches in addition to removing the restriction of equal weightings being applied to each share in the portfolio. The results revealed that an optimal portfolio can be constructed using up to only 15 shares. Secondly, the genetic programming approach demonstrated increased strength compared to the traditional simulation and particle swarm optimisation approaches, obtaining a greater level of diversification with fewer shares. Finally, although the aim of the study is focused on modelling the relationship between the number of shares in a portfolio and the achievable diversification benefits, it is also established that the portfolios indicated as being optimally diversified achieved market beating returns.Item 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 REIT implementation and conversion in South Africa(2017) Pagiwa, Reneiloe LehlohonoloIn 2013 new legislation was introduced allowing for the creation of a new listed property entity called a Real Estate Investment Trusts (REIT). Previously the listed property sector was dominated by two main types of property which were Property Unit Trusts (PUT) and Property Loan Stock Companies (PLS). The introduction of the REIT entity allowed existing listed property companies to convert to REIT status and for new companies to list on the Johannesburg Stock Exchange as REITs. The purpose of this study is to evaluate the impact of REIT implementation and the conversion of PLS and PUT to REIT status on shareholder wealth in South Africa. The study evaluates the change in shareholder wealth through the use of abnormal return calculations during events that led up to the implementation of REITs and conversion to REIT status. The findings show that implementation and conversion to REITs did not result in significant industry gains in shareholder wealth. The events leading to the implementation of REITs however showed positive abnormal returns out lining positive sentiments in the market. For the companies that converted to REIT status their shareholder wealth had negative performance returns. Immediate gains in shareholder wealth are not present. This indicating that the use of REITs as an investment will have to be monitored in the long term.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.