M.Com. (Financial Management) / This paper studies the effects of bull and bear market states on the profitability of a momentum investment strategy. That is, a strategy that buys past winners and sells past losers is simulated over the period 3 July 2002 to 8 August 2012 and its profitability is reviewed in light of bull and bear sub-periods. Such an investment strategy has been shown to yield abnormal returns in several markets around the world, including the South African stock market. By doing so, these studies challenge the efficient market hypothesis, a central and widely accepted hypothesis within traditional portfolio theory. There are many theories that have been used to explain why abnormal profits are achievable using a momentum investment strategy. By determining the effects of bull and bear market states on the profitability of a momentum investment strategy, this paper provides some insight into which theories, if any, are most relevant to the South African stock market context. It is found that on average, a momentum portfolio yields abnormal returns over the full sample period, with the chief driver of these returns being the winner component of the portfolio. When broken into bull and bear sub-periods, it was found that a momentum investment strategy only yields abnormal returns during a bull period, whilst these abnormal returns became negative during a bear period. These results are consistent with one efficient market hypothesis explanation and two behavioral models presented in past studies. The results indicate that the market may be efficient and that changes in macroeconomic risk are the cause of momentum profits. However, insofar as the macroeconomic risk explanation is inaccurate, these results support the behavioural models of Daniel, Hirshleifer, and Subrahmanyam (1998); and Hong and Stein (1999). Both these models predict that momentum returns will be strongest during bull periods.

M.Com. (Financial Economics) / The main concern of this study was to evaluate whether an announcement to host major international sporting tournaments in South Africa is perceived by stock market investors to be associated with net economic benefits for the domestic stock market. If the economic activities associated with a tournament are perceived to be beneficial stock prices should react positively and if such activities are perceived to be bad then prices should react negatively; else there should be no reaction if such announcement conveys no relevant investment information for the stock market. The study applied an event study methodology to analyse the daily historical log returns of the Johannesburg Securities Exchange (JSE) All Share Index (ALSI). It uses bidwinning announcements that South Africa would host three major international sporting tournaments, namely, the 1995 Rugby World Cup, 2003 Cricket World Cup, and 2010 Soccer World Cup. Event windows of 41 days, inclusive of announcement dates, are used to observe price reactions. The estimation samples consisted of 250 daily returns in the pre-event window period. Overall, the results showed that in South Africa all announcements led to a positive price reaction. Thus, the announcements for South Africa to be hosting these tournaments conveyed useful positive information to investors in the JSE.

M.Com. (Business Management) / The capital structure of a company depends on the degree of debt used. Companies use debt to trade of tax shields and financial distress costs. At the margin where these equate, the optimal capital structure is reached. This optimal capital structure has been determined for each size of market capitalisation on the Johannesburg Securities Exchange. The capital structure theories of the static trade-off theory, pecking order and signalling model theory are highlighted in relation to company determinants such as size, asset structure, profitability and growth opportunities. A sample of 35 companies was used for each market capitalization for the period 2003 to 2009. The researcher uses a bar graph to display the average price to book value (P/BV) in sequential intervals for each degree of leverage in order to determine the optimal capital structure. The research shows that the optimum leverage for small market capitalisations was reached with a DIE ratio of 0.75-1 and for medium and large market capitalisations between 1.01-1.25.

While the Efficient Market Hypothesis (EHM) has been widely accepted as robust by many researchers in the field of capital markets, the hypothesis’ robustness has been under increased scrutiny and question lately. In the light of the concerns over the robustness of the EMH, the weak form efficiency of the JSE is tested. Stock returns used in the analysis were controlled for thin trading and it was discovered that once returns are controlled for thin trading, they are independent of each other across time. Some of the previous studies found the JSE to be inefficient in the weak form but this research found that the JSE is efficient in the weak form. A comparison is also made between the JSE and four other African stock markets and the JSE is found to be more efficient than the other markets. The developments on the JSE, which have improved information dissemination as well as the efficiency of trading, contributed to the improvement of the JSE’s efficiency. The improvement in operational efficiency and turnover from the late 1990s has also made a major contribution to the improvement in the weak form efficiency of the JSE. Theory proposes that if markets are efficient then professional investment management is of little value if any; hence the position of professional investment managers in efficient markets is investigated. Although the JSE is found to be efficient, at least in the weak form, it is argued that achieving efficiency does not necessarily make the investment manager’s role obsolete. Investment managers are needed even when the market can be proved to be efficient.

This study investigates FTSE/JSE All Share index monthly and daily equity returns for evidence of the January and TY effect. Four different measures of monthly return are analysed for the 1995-2006 period, whilst daily returns are analysed during the 1995-2005 period. In addition to this, analysis is conducted on monthly Fama-MacBeth risk premium estimates tor the FTSE/JSE All Share Index. Descriptive statistics are first analysed, followed by ANOV A or Kruskai-Wallis tests, the paired t-test and finally dummy variable regression analysis in investigating the seasonality of FTSE/JSE All Share Index returns and risk premia. Analysis on monthly returns reveals an absence of the January effect, however a positive slightly statistically significant December effect is found. Thus, investors earn abnormal returns on equity during the month of December. The results from the Fama-MacBeth risk premia estimates reveals highly statistically significant negative risk premia seasonal patterns during March, July and September. Thus, investors are in fact penalised for investing in equities during these months. In addition, the analysis reveals an absence of a December effect in risk premia, which contradicts the risk-return trade-off central to modem finance. The daily return analysis reveals a highly significant Turn-of-the-Year effect (TY), which suggests that investors earn abnormal returns on days at the turn of the year. Therefore, it is concluded that a December effect is apparent in South African equity monthly returns, whilst a March, July and September effect is apparent in South African equity risk premia contradicting the risk-return trade-off central to modem finance. In addition to this, a TY effect is present in South African equity daily returns.

This study examines the pattern of covariation of the industrial index returns of South Africa and foreign industrial sectors. This follows recent increase in national equity correlations and increases in the influence of industry effects in portfolio diversification. The covariation pattern in returns across industries and countries during both bull and bear runs is examined using correlation analysis to determine if there is a difference between the two epochs. The study presents preliminary evidence of the covariation between sectors during a bear and a bull run. Return covariation among sectors is impelled to a greater extent by country-specific factors than by industry-specific factors, implying the segmentation of industrial sectors. Thus, South African investors can in general gain more if a portfolio comprising shares across industries and countries is held, even if these investors buy shares from similar industries.

The day-of-the-week effect in share prices is one of the most extensively researched anomalies, especially in developed markets. However, emerging African stock markets have received little attention in this regard. This study breaks new ground in using non-parametric tests directly on skewness and kurtosis to examine whether the day-of-he-week effect exists in nine listed stock market sector indices of the JSE Securities Exchange of South Africa (JSE). Different day-of-the-week effects were found to be present in the statistical moments of returns of these nine JSE sectors

The topic of financial contagion has attracted increased attention in economic literature over the past three decades; in particular after the Asian crisis of 1997. This dissertation investigates financial contagion and its effects on South Africa after the 2007 global financial crisis. In particular, it examines whether South Africa experienced contagion from the United States stock market to its own over the period 1 July 2007 to 1 April 2009 within the strict definition of contagion or otherwise: the fraction of exceedance events in the stock market that is left unexplained by its own covariates but is explained by the exceedance from another region. This is tested empirically with a binomial-nominal logistic model. In addition to this, various financial and trade transmission mechanisms are tested to empirically determine through which channels the crisis was propagated. The analysis makes use of quarterly data from January 2002 to April 2009, within an OLS framework, with a dummy variable differentiating the periods before and after the collapse of Lehman Brothers. The findings suggest that contagion was in fact not present in this crisis, which speaks to market rationality and indicates that the South African stock market did in fact react rationally to a changing macroeconomic environment over this period. The transmission mechanism analyses indicate that there was a change in the interdependence relationship between the two stock markets following the crash of Lehman Brothers in September 2008. It is apparent that both trade and financial variables played significant roles in the propagation of this crisis.

This study aims to investigate the informational efficiency of the Johannesburg Stock Exchange with respect to monetary policy. Multivariate co-integration, Granger causality, vector error correction model, impulse response function analysis and variance decomposition analysis are employed to determine the semi-strong form efficiency in South African equity market. Monthly data of Johannesburg Stock Exchange index, money supply (M1 & M2), short term interest rate, inflation, rand/dollar exchange rate, London Stock Exchange index (FSTE100) and GDP from 2000-2009 are the variables of interest.Weak form efficiency is examined using unit root tests. The results of this study show evidence of weak form efficiency of the JSE using the Augmented-Dickey Fuller and Philip-Perron unit root tests. The results reject the hypothesis that the JSE is semi-strong and have important implications for government policy, regulatory authorities and participants in the South African stock market.

The Johannesburg Stock Exchange market was tested for the existence of the random walk hypothesis using All Share Index (ALSI) and time series data for the period between 2000 and 2011. The traditionally used methods, the unit root tests and autocorrelation test were employed first and they all confirmed that during the period under consideration, the JSE price index followed the random walk process. In addition, the ARIMA model was built and it was found that the ARIMA ( 1, 1, 1) was the model that best fitted the data in question. Furthermore, residual tests to help determine whether the residuals of the estimated equation show random walk process in the series were done. It was found that the ALSI resembles series that follow random walk hypothesis with strong evidence of RWH indicated in the conducted forecasting tests which showed vast variance between forecasted values and actual indicating little or no forecasting strength in the series. To further validate the findings in this research, the variance ratio test was conducted under heteroscedasticity and it also strongly corroborated that the existence of a random walk process cannot be rejected in the JSE. It was concluded that since the returns follow the random walk hypothesis, it can be said that JSE is efficient in the weak form level of the EMH and therefore opportunities of making excess returns based on out- performing the market is ruled out and is merely a game of chance. In other words, it will be of no use to choose stocks based on information about recent trends in stock prices.