Magister Commercii - MCom / A distinctive phenomenon on the JSE Securities Exchange (JSE) is the market segmentation between the resource sector and the financial and industrial sectors. Criticisms also arise from employing a capitalization-weighted (cap-weighted) index such as the ALSI index when the market is less than perfectly efficient. A study conducted by Vardharah and Fabozzi (2007) also suggests that a correlation exists between sector allocation decisions and the investment styles inherent in portfolios. The uniqueness of the South African stock market is that it is dominated by three major sectors, namely, the financial sector, the industrial sector and the resources sector. The goal of this research is to examine the application of sector influences on the JSE over the examination period 1 January 2003 to 31 December 2013. It is the contention that the cap-weighted ALSI index is price-sensitive and potentially mean-variance inefficient. The study therefore attempts to evaluate the relative meanvariance efficiency of alternative sector allocation strategies versus the cap-weighted ALSI as the optimal risky portfolio on the JSE. Two optimal long-only portfolios that maximises the Sharpe ratio are constructed and compared to the market proxy on the JSE over the examination period from 1 January 2003 to 31 December 2013. A longonly portfolio that comprises the JSE tradable sector indices and includes a cash allocation (risk-free proxy) and a long-only portfolio exclusive of the cash allocation are constructed. The research extends to cross-examine the inter-relationship between sector returns and the investment styles on the JSE using the Carhart (1997) four-factor model. The research further reexamines and updates the market segmentation phenomenon over the extended examination period from 1 January 2003 to 31 December 2013. The practicality of two sector-based multifactor APT models are examined and compared to the single-factor CAPM to determine which of the asset pricing models better explain JSE equity returns. A sector-based two-factor APT model proposed by Van Rensburg (2002) using the JSE sector indices FNDI and RESI as the sector proxies is reexamined and a sector-based three-factor APT model using the JSE tradable sector indices FINI, INDI and RESI as the sector proxies is explored. The optimal long-only portfolio with the cash allocation is found to offer the best meanvariance efficient allocation and the ALSI index represents the most mean-variance inefficient portfolio. The resource sector is found to be the worst performing sector and significantly influences the performance of ALSI. In terms of the style risk influences, the financial sector has a strong value bias and the industrial sector has a moderate value bias, small cap bias and a momentum bias. The resource sector, for the most part, is influenced by growth stocks and has a contrarian tilt. It is also found that the market segmentation phenomenon continues to exist on the JSE. Although the explanatory power of the three-factor APT model and the two-factor APT model is similar, the distinct advantage of the three-factor APT model is that systematic risks could be observed more closely by separating FINI and INDI in the asset pricing model.

Magister Commercii - MCom / Motivated by the number of firms that migrate from the Alternative Exchange (AltX) to the JSE main board, this research undertakes to examine the role and the functions of the AltX and its contribution to the development of the small and medium-sized enterprises (SMMEs) in South Africa over the period from January 2004 to December 2015. This study seeks to explore the performance of the firms that have migrated from the AltX to the JSE main board, as well as the attributes that contribute to a successful migration. The study emerges by computing risk, return, risk-adjusted performance and liquidity statistics of the firms that migrated from the AltX to the JSE main board over the period of the research since their respective listings on the AltX. In the preliminary tests conducted in this study, the excess returns of the sample firms were regressed against the market risk premium using ALSI as the market proxy. It is discovered that the beta coefficients estimated by the regressions are statistically insignificant. This indicates that the firms listed on the AltX have insignificant correlation with the firms listed on the JSE main board. Therefore, the ALSI could not be used as a performance benchmark for the sample firms in this research. Subsequently, the research evaluates the market response before and after the announcement date and the actual migration date of the firms that have migrated from the AltX to the JSE main board. The reasons why this research investigates the impact of announcement and actual migration separately is due to the observation that the period between announcement date and migration date is usually more than a month and investors might have different reactions towards these two mentioned events. Moreover, this is the first research that has investigated the impact corporate reaction on both migration announcement date and the actual migration date of the firms from the AltX to the JSE main board. The results reveal that there are significant average abnormal returns and average abnormal turnovers reaction around migration announcement date/actual migration date. The findings suggest that both the migration announcement and actual migration of the firms from the AltX to the JSE main board have produced significant abnormal returns. Moreover, the research evaluates the performance of the firms that have migrated from the AltX to the JSE main board against their comparable peers. The performance evaluation is conducted in two folds. Firstly, the evaluation is conducted in order to assess the financial position of the AltX sample firms before their migration to the JSE main board. Secondly, the post migration performance evaluation is conducted in order to classify each of the sample firms either as a success or as a failure after their migration to the JSE main board. The results reveals that, out of 20 sample firms only 13 firms have been categorised as successful post their migration from the AltX to the JSE main board, while the remaining 7 firms are categorised as unsuccessful post migration. Finally, this research investigates the attributes that differentiate the AltX firms that are likely to be successful and those that are unlikely to be successful after their migration to the JSE main board. To achieve this, Multivariate Discriminant Analysis (MDA) model developed by Altman (1968) is employed. The results reveals that, the model is able to classify 90% of the original cases and 85% of the cross-validated cases perfectly. Moreover, the model has identified net profit margin, current ratio and return on capital invested as the most important financial ratios in distinguishing the successful firms from unsuccessful firms post migration from the AltX to the JSE main board. / 2021-04-30