3. Electronic Theses and Dissertations (ETDs) - All submissions
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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 The relationship between financial development and cost of equity capital in African emerging and frontier markets(2017) Nyanga, TagumaAlthough many studies have been done to determine the relationship between financial development and cost of equity capital in various markets, few have focused on the African emerging and frontier markets. This research therefore investigates the relationship between financial development and cost of equity capital in the African Emerging and Frontier Markets. Stock market development and banking sector development are both used as proxies for financial development in this study whilst cost of equity is determined using CAPM. The study is based on five emerging and frontier markets (Egypt, Kenya, Morocco, Nigeria and South Africa). The research finds that both measures of stock market development (stock market capitalisation to GDP ratio and stock market liquidity/turnover to GDP ratio) tend to reduce cost of equity in the African emerging and frontier markets. In a similar fashion, the banking sector development was also found to be negatively related to cost of equityItem Modelling and forecasting volatility in the fishing industry: a case study of Western Cape Fisheries(2017) Nzombe, JothamThe Western Cape Fishing industry has been a subject of discussion in numerous papers, in which the thrust has been to seek ways of sustaining the significantly fluctuating business. Common risk factors have been identified and strategies for managing the fishing business in turbulent periods have been proposed over the years. A closer examination of previous literature as well as empirical evidence indicate that the business has less to do to control or minimize the impact of most of its external factors, which include the Government imposed Total Allowable Catch (TAC) limit, the variability in natural marine populations, environmental factors and fuel price oscillations. In the interest of curbing the variability component which is borne by the internal factors, this study brings on board a quantitative dimension to the evaluation of the four commonly cited internal factors, namely; Earnings Per Share (EPS), Margin of Safety (MOS), Free Cash-Flow (FCF) and the Net-Worth (NW) on volatility of the fishing business. The performance of five large JSE-listed fishing firms: Brimstone, Oceana, Premier Fishing, Sea Harvest and Irvin & Johnson, is investigated with the view of modelling and forecasting their volatilities. Initially, the comparison of volatility forecasts from symmetric and asymmetric GARCH-family models is employed. The results of competing models are tested using cross-validation of mean error measures and the Superior Predictive Ability (SPA) and Model Confidence Set (MCS) tests. Later, a Vector Autoregressive (VAR) model is applied to assess the impact of the four commonly cited internal factors on volatility. The research analysis results reveal a generally high volatility of the Western Cape fishing sector stocks. When univariate GARCH models are applied, the asymmetric GARCH-family models (EGARCH and GJR), with fat tails, appear dominant in the sets of competing models for all stocks, which highlights evidence of the leverage effect in the sector. However, GARCH (1,1), outperformed its counterparts in modelling and forecasting Irvin & Johnson (AVI) and Oceana (OCE) stocks. In the VAR modelling process, the Granger-causality tests indicate limited causal-relationship between EPS, MOS, FCF and the company Net-worth with the companies’ volatility measures. The variance decomposition of the 10-year ahead forecast of volatility indicates that volatility lag, free cash flow and networth have the largest contribution on volatility in the long-run, followed by margin of safety. In view of the above observations, the research discusses recommendations to the Western Cape fishing business to improve business returns and sustainability.Item The stock market as a leading indicator of economic activity: time-series evidence from South Africa(2016) Sayed, AyeshaSeveral studies have assessed the forward-looking characteristic of share prices and confirmed their resultant capability as leading indicators of economic activity, especially in advanced economies. Contention however exists when evaluating the role of stock markets as leading indicators for less developed countries. This study examines the validity of the stock market as a leading indicator of economic activity in South Africa using quarterly time-series data for the period January 1992 to June 2014. Causality and cointegration between the JSE All Share Index against Real GDP and Real Industrial Production is evaluated by employing Granger-causality tests and the Johansen cointegration procedure. The empirical investigation indicates that unidirectional causality exists between the nominal and real stock indices and economic activity in South Africa, and confirms a long-run relationship between the JSE and GDP and Industrial Production. Therefore, similar to the study by Auret and Golding (2012), in a South African context, the stock market is in fact a leading indicator of economic activity.Item The effect of analysts' stock recommendations on shares' performance on the JSE securities exchange in South Africa(2016-08-31) Piyackis, AlessandraIndividual investors often do not have access to share trading information and even if they do, they may not be able to understand or accurately interpret this information. Investors rely on financial analysts’ forecasts and stock recommendations in order to make profitable investment decisions. The role of the financial analyst is an important one with two key objectives: earnings forecasts and stock recommendations (Loh and Mian 2006). These financial analysts play a significant role in the efficient functioning of global stock markets. The aim of the financial analyst is to evaluate shares trading on the stock market and their future price appreciation or depreciation to develop new buy, hold or sell recommendations to maximize shareholder wealth. The extant literature recognizes that new buy, hold and sell recommendations made by financial analysts have a substantial impact on the market (Womack, 1996). Research on financial analysts has become prevalent in financial literature with the promotion of financial analysts to the level of integral economic proxies worthy of individual examination (Bradshaw, 2011). The aim of this research report is to investigate whether financial analysts’ stock recommendations enhance or destruct shareholder wealth. The extant literature on financial analysts’ stock recommendations and forecasts suggests that the analysts’ recommendations have both a significant and an insignificant effect on stock prices in the market following the months after the change in recommendation is made. The accuracy of the financial analysts’ stock recommendations are measured in the months following the change in recommendation through determining if the recommendation outperforms the market benchmark. This report examines the effects of analysts’ recommendations on the performance of stocks on the Johannesburg Stock Exchange and concludes through determining if the share underperforms or outperforms the market benchmark surmising that to a varying degree there is value to be found in financial analysts’ stock recommendations for the individual investor.Item Index/sector seasonality in the South African stock market(2016-08-25) Naidoo, Justin RovianThis paper aims to investigate the apparent existence of two anomalies in the South African stock market based on regular strike action, namely the month of the year effect and seasonality across specific sectors of the Johannesburg Stock Exchange.