MCom (Research) , Faculty of Commerce, Law and Management, University of the Witwatersrand, 2007 / The purpose of this dissertation is to motivate, construct and test the suitability of the Fama and French (1993) three-factor model in pricing equities listed on the Johannesburg Stock Exchange. Before this can be achieved, however, the existence of the size and the value effects needs to be established, and their resistance to risk adjustment with traditional asset pricing models needs to be ascertained. Once, these two empirical facts are documented, the three-factor model is built and tested. Results of Fama and French (1992) can be replicated on the Johannesburg Stock Exchange in that a firm‟s size and its value-growth indicator have reliable power to forecast stock returns. However, the value effect and, in particular, the size effect, attenuate after market microstructure is controlled for. Both effects are found to be independent of one another and the book-to-market ratio is found to be the best value-growth indicator. The static CAPM and an APT variant cannot explain the size and the value effects. This result is robust to time-series and cross-sectional tests. The three factor model of Fama and French (1993), and its variant, are constructed. The models can capture a substantial amount of time-series variation in most assets. When applied to the size and book-to-market sorted portfolios, they are not rejected in the vast majority of asset pricing tests. In tests on ungrouped data, the three factor model can explain the value effect, but not the size effect. However, in cross-sectional tests that use the size and book-to-market sorted portfolios as well as industry portfolios, the pricing errors of the three factor model are not substantially different from the ones obtained from the static CAPM.

Master of Commerce - Accounting There are 1 files which have been withheld at the author's request. / Since the identification and documentation of a day-of-the-week effect, it has captured imagination of the investing public and the attention of researchers. Indeed a significant amount of research has been dedicated towards the day-of-the-week effect. Until recently, the results of such research were consistent in that the evidence seemed to indicate that a day-of-the-week effect may indeed exist throughout the world. More recent studies have, however, produced different results and a second body of evidence is developing which indicates that the day-of-the week effect is dwindling. Attempts by researchers to attribute the day-of-the week effect to the settlement practices of various exchanges have met with limited success. This study argues that one would expect traded prices on an exchange to incorporate an adjustment for the delay between transacting and settlement. A model is formulated to adjust the mean daily returns on the exchange for the particular exchange’s settlement practice. This model is tested against historic price data from the Johannesburg Stock Exchange. The evidence presented does not support the notion that the traded prices are adjusted for the delay between the transaction and the settlement, the overall conclusion is that the settlement effect may represent a Johannesburg Stock Exchange inefficiency, though the size and significance of the effect has decreased in recent times

Most asset pricing theories suggest that asset prices are forward looking and reflect market expectations of future earnings. By aggregating across companies, aggregate market prices may then be used as leading indicators of future Real GDP, Real Industrial Production and the level of Inflation. A Hodrick & Prescott (1981) filter is used to detrend the data, which is compiled on an annual and quarterly basis from the JSE, to test whether stock returns are in fact useful for indicating economic activity. An autoregressive model is constructed, yielding strong evidence of significance, in the first four quarters on a quarterly basis, and two years on an annual basis, for Real Stock Prices. Therefore, in terms of a South African context, the Cycle of Real Stock Prices are a leading indicator on the JSE.

One of the fundamental tenets of finance is the relationship between risk and return. This research report contributes to the debate by testing the conditional risk-return relationship of shares on the Johannesburg Stock Exchange (JSE) for the period 2001 to 2011. More specifically, the extent to which beta, standard deviation, semi-deviation and value-at-risk (VaR) are individually able to explain total share return, taking into account the conditional framework of up and down markets and sub-periods, is investigated. Portfolios based on these risk measures have been tracked and regressed. The robustness of the relationships are tested by using value and equal weighted portfolios. The study indicates that standard deviation was able to explain the risk-return relationship across all scenarios (overall, up/down markets and sub-periods), while beta proved to be an ineffective measure of risk under all scenarios. The testing of downside risk measures revealed that semi-deviation produced weak results under all scenarios, while value-at-risk proved to be an effective measure of risk both during poor market conditions and on an overall basis.

This research report examines the effect of the announcement of corporate unbundling by South African corporations listed on the Johannesburg Stock Exchange. This research was carried out in order to update the literature and to analyse whether results confirm the previous research performed by Blount and Davidson (1996) or coincides with international trends, which displayed positive responses to unbundling announcements. The event study methodology was used for analysing the market’s reactions to corporate unbundling announcements. Abnormal returns were calculated using the market model approach with an event window of ten days and an estimation window of 120 days. A sample of 27 corporations were analysed in this research report during the period January 2002 to June 2011. The results indicated strong negative abnormal returns as a result of the corporate unbundling announcements. This finding confirms Blount and Davidson’s (1996) earlier research.

A dissertation submitted to the Faculty of Science, University of the Witwatersrand, Johannesburg, in fulfilment of requirements for the degree of Master of Science. January 2015. / Stylized facts play a significant role in the testing whether models agree with known statistical anomalies and phenomena that occur in financial markets or not. Thus, we can use these stylized facts as a modelling tool or just to understand the general behavior of financial markets better. In the paper by Bouchaud et al in 2004 [1] we see the promotion of a new stylized fact that correlations in trade signs fail to die out, even after large lags. In fact, Bouchaud et al expressed the correlations as a slow power-law decay over trade ticks. In the results of our empirical study of JSE and BM&FBOVESP we find that the selected stocks show the this same power-law decay of correlations of trade signs. We also find that the stocks behave in a way which may allow for price manipulation at high enough trading rates as discussed by Gatheral [2].

A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Finance and investment. Johannesburg, 2015 / A pairs trading strategy is a market neutral trading strategy that tries to make a profit by making use of inefficiencies in financial markets. In the equity pairs trading context, a market neutral strategy, is a strategy that hedges against both market and sector risk. According to the efficient market theory in its weak form, a pairs trading strategy should not produce positive returns since the actual stock price is reflected in its past trading data. The main objective of this paper is to examine the performance and risk of an equity pairs trading strategy in an emerging market context using daily, weekly and monthly prices on the Johannesburg Securities Exchange over the period 1994 to 2014. A bootstrap method is used determine whether returns from the strategy can be attributed to skill rather than luck. / MT2016

Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2013. / The subject of this study posits the profitability of an investment strategy focused on high-dividend yielding securities from the South African stock market over the period of 10 years from 2002 to 2012. The study follows an expected dividend yield model, similar to the model proposed by Hsu and Lin (2010), for the construction of a high-dividend yielding portfolio. Financial data of listed companies’ dividends and other financial information is used to estimate these expected current dividend yields by employing multiple regression analysis. It is suggested that these expected yields better reflect companies’ future profitability than traditional current dividend yields. The results of the study show that the performance differences between the portfolios based on the expected dividend yield model and the benchmark portfolios are significant; however the tests of the model suggest that the model is not a good fit for the data.

A 50% dissertation presented in partial fulfilment of the requirements for the degree of Master of Commerce at the University of Witwatersrand. / Information 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.

Thesis (M.M.(Finance & Investment)--University of the Witwatersrand, Faculty of Commerce, Law and Management, Wits Business School, 2016 / Co-location on the JSE took place on the 14th of May 2014. This dissertation looks at the impact this event has had on the market. In order to measure the effects of colocation, market quality factors are examined before and after the event to see whether there were any significant changes. A regression is then undertaken to see the correlation between co-location, liquidity and volatility. Our results suggest that colocation benefits market liquidity but we are unable to assess the relationship with volatility. This means that the growing liquidity in the market can be used to attract more institutions and firms wishing to run trading algorithms and strategies. Trades originally meant for dark pools can be now traded on the JSE co-location servers. By moving trades from dark pools to co-location servers at the JSE and encouraging institutions to use these facilities, transparency can be increased. Exchanges should implement kill switches if it is apparent that they are being impaired or flooded with erroneous orders. The deployment of kill switches, circuit breakers and other system compliance will improve investor confidence and market stability. Subsequent research can lead to better understanding by investigating the correlation between colocation and volatility. / MT 2018