3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Evaluating the diversification effects of direct real estate within a multi asset portfolio of shares and bonds(2018) Singh, VijayThis study examined the diversification benefits of including direct real to a multi asset portfolio of stocks and bonds. Modern Portfolio Theory provided the theoretical frame work for construction of thirty multi asset portfolios, over a twenty year time period from 1995 to 2014. The methodology included the calculation of optimal portfolios, efficient barriers, returns, risks and correlation of the asset classes. The results of this study indicate that direct real estate provides significant diversification benefits to multi asset portfolios and furthermore direct real estate proved to be a diversifier of risk and a return enhancer over the time period studied.Item The viability of using markowitz portfolio theory as a passive investment strategy on the JSE(2015) Els, Tilo UdoMarkowitz Portfolio Theory (MPT) and related research was studied. Objectives were then formulated around whether an MPT model could outperform the returns of the Johannesburg Securities Exchange (JSE) and other financial instruments such as unit trusts. An MPT model was then created in Matlab using the information learnt from the theory and other appropriate sources. The model was used to generate a range of results depending on different inputs into the model. The model outputs were further analysed in Excel and results in the form of tables and graphs were created. It was found that the MPT model considerably outperforms the JSE ALSI and JSE Top 40. There were many positive Sharpe Ratios for various different inputs and model parameters. The JSE ALSI had a 1 year return of 17.13% and 3 year annualised return of 12.83%. The MPT model had 1 year returns of between 17.07% and 37.81%. The MPT model had 3 year annualised returns of between 11.81% and 26.24%. The MPT model outperformed the JSE ALSI with 5 out of 6 portfolios created. The JSE Top 40 had a 1 year return of 18.37% and 3 year annualised return of 13.02%. The MPT model had 1 year returns of 21.49% and 24.24% and 3 year annualised returns of 18.53% and 20.72%. The MPT model for Top 40 data thus outperformed the JSE Top 40 over 1 year and 3 years annualised. The MPT model had two out of its eight portfolios in the top four of the best performing unit trusts over 3 years of total returns. Over a 1 year return, two of the MPT portfolios were the top two performers compared to other unit trusts. This research has thus shown that an MPT model using historical data can outperform the JSE and can perform competitively with other unit trusts.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 African equity markets integration: a case study of COMESA(2017) Mundonde, JusticeThe vicious quest for higher risk-adjusted returns through diversification of portfolios has seen an enormous amount of foreign capital flows into new emerging markets. However, the success of any strategy profoundly depends on the degrees of comovements among markets - higher comovements limit the possible gains from diversification. It has been argued that the very act of chasing after these diversification benefits, which mainly includes financial globalisation, has actually resulted in the erosion of the benefits themselves. In addition, aspects such as international trade, the establishment of trade blocs and liberalisation of market controls has further reduced these diversification benefits. In this study, the long-run cointegration, short-run causality and volatility linkages were examined using six COMESA markets indices. The goal of the study was to ascertain whether the establishment of this bloc has resulted in increased association among the member markets. The astonishing rate at which globalisation has been growing at has drawn with it both opportunities and risks for investors. The Engle-Granger, the Johansen cointegration technique and the ARDL test methods revealed that the markets integrated in the long run, a result indicative of low diversification benefits across COMESA markets. However, the weak short-run causality from the causality tests revealed that despite the strong long-run relationship, an active investment strategy that seeks to diversify portfolios in the short-run could still yield enormous diversification benefits. A subsequent examination of the volatility linkages using generalised autoregressive conditional heteroscedasticity models revealed that uniformity of volatility structures in terms volatility persistence, leverage effects and risk premium across the markets, indicative of the high likelihood of volatility spill-overs across the markets. This implies that, despite the weak short-run causality, the benefits from short-run diversification can still be quite low due to the high likelihood of volatility spillovers across these markets. In light of these results, investors within the COMESA markets should rather focus on other markets outside the COMESA as diversification destinations.Item Individualism as a driver of overconfidence, and its effect on industry level returns and volatility across multiple countries(2016) Horne, ChadThis study attempts to determine the possible effects of individualism on industry volatility. The implications of this for behavioural finance are extensive, showing firstly that different industries react differently to behavioural biases and secondly that overconfidence is a possible driver of the positive effect of individualism on industry volatility. The country selection process was relatively objective, taking two countries with high individualism indexes and two with low indexes and including one with a medium index value. The result was a sample of the United States of America, the United Kingdom, South Africa, China and Taiwan. The industry selection process was more subjective. Industries were selected which should have a higher propensity to behavioural biases with lower book to market ratios (software and computer services industry and pharmaceutical and biotechnology industry) and other industries which should not be as strongly affected by behavioural biases (banks, mining, oil and gas producers, and mobile telecommunications industries). In order to correct for ARCH effects the series’ were modelled using a GARCH (1, 1) model. The resulting residuals, which showed no autocorrelation, were then used to conduct panel data regressions on each of the industries. The results confirmed that individualism had a positive effect on volatility in the industries which were expected (software and computer services and pharmaceuticals and biotechnology industries). However, it was also determined that the banks industry was significantly affected by individualism, an effect which it was hypothesised, was due to the individualism of employees as opposed to investors.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.Item Commodities and the South African investment portfolio(2014-01-16) Rodrigues, Jason RossThis study aims to make a contribution to the better understanding of the role commodities play in a portfolio, specifically in a South African investment portfolio. It considers the interactions between a fully collateralised commodity index and South African equities, bonds, property and cash. The study uses historical data to asses if commodities provide addition benefits to an investment portfolio, namely, additional returns, diversification and as an inflation hedge. The analyses used in this study are performance analysis, correlation studies and portfolio optimisation. Based on the evidence presented in this study we show that there were some benefits to adding commodities to a South African investment portfolio, namely, using commodities to diversify a portfolio and as an inflation hedge. However, commodities did not provide sufficiently large enough returns to justify their high volatility and as such would not be an appropriate stand alone investment in the South African context.Item The diversification potential of securitized real estate for mixed portfolios in South Africa(2013-07-25) McDonald, Wendy LeeResearch indicates that investment in un-securitised private real estate in both developed and emerging economies exhibits inflation hedging potential and provides diversification benefits for mixed-asset portfolios, reducing the risk of portfolios that contain mostly common stocks and bonds. This paper examines the risk diversification potential of securitised property funds for investment portfolios comprising traditional asset classes such as common stocks, bonds and cash instruments in the South African context – to establish if they exhibit the same characteristics as un-securitised private real estate. The results indicate that including securitised property funds in a portfolio comprised of traditional assets reduces unsystematic risk in a portfolio by a significant amount. We also assess the affecters of variability in returns of PUT and PLS funds. The results suggest that the variability in PUT and PLS returns can be explained by both the variability in the equity and debt markets (measured by the ALSI and ALBI), and the variability in direct property returns. Importantly, we find that PUT and PLS market pricing is representative of the underlying asset class pricing (direct real estate prices).