3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Share issues and repurchases related to equity market timing on the JSE(2016-01-29) Potgieter, FahmidaInformation asymmetry creates a gap between management’s perception of the firm’s value and the market value of the firm. It is thought that management engage in information signalling activities in order to close the gap created by information asymmetry. There is a need to understand why management engage in their chosen transactions as this will provide investors with insight into market activities, as well as allow for more accurate investment strategies. While research is available on the market’s reactions to signalling events, the problem is whether management’s intentions have been correctly interpreted by the market. The starting point to gaining this understanding is to ask the question: What signals do management send when they issue and repurchase shares? This study attempts to answer this question by investigating whether companies listed on the Johannesburg Stock Exchange (JSE) issue shares because management perceive their market values to be overvalued and repurchase shares because their market values are undervalued. For the period 1 January 2003 to 31 December 2012, a total of 295 share issue announcements are considered for 102 companies; and a total of 183 share repurchase announcements are considered for 83 companies. The results of this study reveal that managerial equity market timing may exist in the presence of excess returns, where management are better able to predict returns in advance than the market. However, there is also evidence suggesting share repurchases are made to return excess cash to shareholders and issues and repurchases decisions are linked to capital structure planning. The fact that there are other potential reasons for share issues and repurchases, means that the market must be able to determine what the real intentions of management are when shares are issued and repurchased; and hence determine whether their intentions suggest equity market mispricing.Item The impact of exchange rates on the chemical industry in South Africa(2015) Mutwanamba, PfareloCould not copy abstractItem Macroeconomic determinates of housing prices in South Africa(2015) Mwenje, GraceThis study investigates key macro-economic variables that influence housing prices in South Africa. Impact of shocks to macro-economic variables on housing prices in the short run is analysed as well as the nature of the relationship between housing prices and seven macro-economic variables in the long run. Using quarterly data from 1978 (3rd quarter) to 2014 ( 1st quarter ) , the study shows that absa real house prices, rand/us$ exchange rate, household/debt disposable income, household net wealth/disposable income, new mortgage loans and prime interest rates have a long run equilibrium relationship. Macro-economic variables have a positive impact on house prices in the long run; household net wealth/disposable income and household debt/disposable income are leading variables in explanation of house price movements. Shocks to prime interest rates and rand/us$ exchange rate impact negatively on house prices in the short run.Item The relations between dividend policy and stock returns in the Dar Es Salaam Stock Exchange, Tanzania(2015) Sylvester, Deodatus MkobaDividend policy establishes the distribution of a company’s profit whether they could pay out to the stockholders as dividends or retain the profit for re-investments in the company. There are several theories which explain the dividend behaviour, and the empirical studies suggest evidence for one over the other, however the belief concerning corporate dividend theories are different. There are two conflicting theories; those who believe in dividend relevance theory (Lintner & Gordon) and those who believe in dividend irrelevance theory (Miller & Modigliani). The key part of the study is related to the evaluation of which theory is suited for dividend policy of companies in Dar es Salaam Stock Exchange (DSE). So far numerous researchers have make an effort to solve the dividend puzzle. The main aim of this study was to establish whether there is a relationship between dividend policy and stock return of companies listed in Dar es Salaam Stock Exchange. In particular, the study focuses on three main aspects, namely; investigating the association between stock returns and dividend yield, stock price reaction to dividend announcements and identifying the factors influencing dividend policy decisions. The empirical findings confirmed that dividend yield has a strong impact on stock returns and it is statistically significant. The finding of this study supported the dividend relevance theory. The event study found that dividend announcements have an impact on share prices and the significance of the abnormal around event date confirms that the DSE market supports dividend relevance and signaling theory. Finally, the study concluded that debt ratio and age of the firms have a strong influence on the dividend policy on firms on the DSE.Item An analysis of the random walk hypothesis: Evidence from the Lusaka stock exchange(2014-07-29) Kabaye, TaniyaThe paper evaluates whether the Lusaka Stock Exchange (LuSE) is weak form efficient, and whether stock price movements conform to the random walk hypothesis of non-predictability in future price movements based on past price information. The methods employed are the parametric and non-parametric individual as well as multiple variance ratio tests. In addition, the study incorporates the Runs Test. The study further examines seasonality in Zambian stock returns of the day of the week effect as well as monthly related effects. The period of analysis is from 3rd January, 2006 to 17th February, 2014. The study incorporates daily data as well as monthly data of the LuSE All share Index in order to investigate the random walk hypothesis as well as seasonality effects of the Zambian market. The period of analysis is broken down into two sub periods after accounting for multiple structural breaks in the data. The results of the study are mixed, the results of the Runs test finds the Zambian stock market price series to be mutually independent and conform to a random sequence, and are as such unpredictable. While the variance ratio tests reject the random walk hypothesis for the Zambian market, and as such, support the view of the use of technical trading strategies in order to outperform buy-and-hold strategies. The study finds no evidence of any seasonality in the data, either for daily data as well as monthly data. As such there is evidence that investors may acquire returns greater than those of the market, however, transaction costs and commissions would have to be minimal in order to exploit any patterns in the stock price series of the Lusaka stock exchange.Item An empirical evaluation of capital asset pricing models on the JSE(2014-03-07) Sacco, Gianluca Michelangelo;The Capital Asset Pricing Model (CAPM), as introduced by Markowitz (1952), Sharpe (1964), Lintner (1965), Black (1972) and Mossin (1966), offers powerful and intuitively pleasing predictions about the risk and return relationship that is expected when investing in equities. Studies on the empirical strength of the CAPM such as Fama and French (1992), however, indicate that the model does not reflect the share return actually obtained on the equity market. Attempting to improve the model, Fama and French (1993) enhanced the original CAPM by incorporating other factors which may be relevant in predicting the return on share investments, specifically, the book – to – market ratio and the market capitalisation of the entity. Carhart (1997) further attempted to improve the CAPM by incorporating momentum analysis together with the 3 factors identified by Fama and French (1993). This research report empirically evaluates the accuracy of the above three models in calculating the cost of equity on the Johannesburg Stock Exchange over the period 2002 to 2012. Portfolios of shares were constructed based on the three models for the purposes of this evaluation. The results indicate that the book-to-market ratio and market capitalisation are able to add some robustness to the CAPM, but that the results of formulating book – to – market and market capitalization portfolios is highly volatile and therefore may lead to inconsistent results going forward. By incorporating the short run momentum effect, the robustness of the CAPM is improved substantially, as the Carhart model comes closest to reflecting what, for the purposes of this study, represents the ideal performance of an effective asset pricing model. The Fama and French (1993) and Carhart (1997) models therefore present a step forward in formulating an asset pricing model that will hold up under empirical evaluation, where the expected cost of equity is representative of the total return that can be expected from investing in a portfolio of shares. It is however established that the additional factors indicated above are volatile, and this volatility may influence the results of a longer term study.Item A comparison of the forecasting accuracy of the downside beta and beta on the JSE top 40 for the period 2001-2011(2014-03-06) O'Malley, Brandon ShaunThe purpose of this research report is to determine whether the use of a Downside risk variable – the D-Beta – is more appropriate in the emerging market of South Africa than the regular Beta used in the CAPM model. The prior research upon which this report expands, performed by Estrada (1999; 2002; 2005), focuses on using Downside risk models mainly at an overall country (market) level. This report focuses exclusively on South Africa, but could be applicable to various other emerging markets. The reason for researching this topic is simple: Investors – not just in South Africa, but all across the world – think of risk differently to the way that it is defined in terms of modern portfolio theory. Beta measures risk by giving equal weight to both Upside and Downside volatility, while in reality, investors are a lot more sensitive to Downside fluctuations. The Downside Beta takes into account only returns which are below a certain benchmark, thereby allowing investors to determine a share’s Downside volatility. When the Downside Beta is included as the primary measure of systematic risk in an asset pricing model (such as the D-CAPM), the result is a model which can be used to determine cost of equity, and make forecasts about share returns. The results of this research indicate that using the D-CAPM to forecast returns results in improved accuracy when compared to using the CAPM. However, when comparing goodness of fit, the CAPM and the D-CAPM are not significantly different. Even with this conflicting result, this research shows that there is indeed value in using the D-Beta in South Africa, especially during times of economic downturn.Item Algorithmic trading, market efficiency and the momentum effect(2014-02-24) Gamzo, Rafael AlonThe evidence put forward by Zhang (2010) indicates that algorithmic trading can potentially generate the momentum effect evident in empirical market research. In addition, upon analysis of the literature, it is apparent that algorithmic traders possess a comparative informational advantage relative to regular traders. Finally, the theoretical model proposed by Wang (1993), indicates that the informational differences between traders fundamentally influences the nature of asset prices, even generating serial return correlations. Thus, applied to the study, the theory holds that algorithmic trading would have a significant effect on security return dynamics, possibly even engendering the momentum effect. This paper tests such implications by proposing a theory to explain the momentum effect based on the hypothesis that algorithmic traders possess Innovative Information about a firm’s future performance. From this perspective, Innovative Information can be defined as the information derived from the ability to accumulate, differentiate, estimate, analyze and utilize colossal quantities of data by means of adept techniques, sophisticated platforms, capabilities and processing power. Accordingly, an algorithmic trader’s access to various complex computational techniques, infrastructure and processing power, together with the constraints to human information processing, allow them to make judgments that are superior to the judgments of other traders. This particular aspect of algorithmic trading remains, to the best of my knowledge, unexplored as an avenue or mechanism, through which algorithmic trading could possibly affect the momentum effect and thus market efficiency. Interestingly, by incorporating this information variable into a simplified representative agent model, we are able to produce return patterns consistent with the momentum effect in its entirety. The general thrust of our results, therefore, is that algorithmic trading can hypothetically generate the return anomaly known as the momentum effect. Our results give credence to the assumption that algorithmic trading is having a detrimental effect on stock market efficiency.Item Analysis of predictable behaviour of security returns on the JSE(2014-02-17) Muzenda, SimonThis paper replicates Jegadeesh`s (1990) paper entitled “Evidence of Predictable Behavior of Security Returns”. Jegadeesh (1990) states that by using the observed systematic behaviour of stock returns it is possible to make “one-step-ahead return forecasts”. That is forecast the return one month in the future. The aim of this research is to assess the predictability of monthly returns on the Johannesburg Stock Exchange (JSE) by analysing the monthly returns of stocks and portfolios of stocks from the JSE. This thesis will show that it is not possible to accurately or reliably forecast future returns for individual stocks or portfolios of stocks from the JSE. In addition the findings in this paper also indicate that stocks and portfolios of stocks from the JSE follow the random walk theory.Item Earning news on stock liquidity and post earnings announcement drift in France, USA and South Africa.(2013-08-27) Oyebanji, Busayo FunkeThis thesis aims to investigate the influence of earnings news on stock liquidity and the relationship between information asymmetry cost component and Post Earnings Announcement Drift in different equity markets. The scope of this research includes 426 firms from three countries in capital trading, the United States of America, South Africa and France. The first part of empirical work, shows that price reaction and liquidity effect are profound during short term event window length and reduce over time when the news ceases, The second part, a multivariate regression analysis which uses Generalised Method of Movement to capture both the problems of a likely presence of endogeneity between the explanatory variables and cross-stock heterogeneity, shows that the impact of earnings announcement on stock liquidity can split in two directions. The immediate effect is the shock after the news, causing stock liquidity to decrease immediately by lifting the illiquidity function upward. After the event, from the new increased position of illiquidity function, stock liquidity improves over time due to the trading volume increases and shifts the slope of illiquidity function downward. The overall effects at a point of time will be the total impact of the two side effects. And as shown in the results, the overall impact on the US and SA markets are that stock liquidity decreases while that of Euronext Paris, the stock liquidity increases. There are two types of Accounting law systems of which the common law system is used in the US and SA equity markets and the code law system used in France, the difference between the two law systems is that the information asymmetry component dominates the bid-ask spread in common law countries as in the US and SA markets while the cost of trading dominates the bid-ask spreads in code law countries such as France equity market. Finally, it is shown that there are several determinants of the PEAD, of which stock liquidity is one. Earnings news changes the stock liquidity, and therefore stock liquidity plays a role in the market response. When earnings news is released, it initially creates a gap between the informed traders and the uninformed traders, increasing the bid ask spread. Over time, this information gap decreases, however in the meantime more information on the market increases trading volume and reduces trading cost, leading to another part of the bid ask spread decreasing or stock liquidity improving. After decomposing bid ask spread into information asymmetry cost and cost of trading components, the final part of empirical iv analysis shows that information asymmetry cost component provides a partial explanation for PEAD in the Johannesburg stock exchange and Euronext Paris.