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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.

The objective of this thesis was to analyse the empirical applicability of the Arbitrage Pricing Theory to international asset markets (UK stock market and US stock market) and to identify the set of economic variables which correspond most closely with the stock market factors obtained from the traditional factor analysis. Factor analysis and canonical correlation analysis were used as the principal tools for the empirical testing. Although factor analysis is frequently used, canonical correlation analysis is an new technique in this area and provides a method of linking factors extracted from the two sets of data. Various economic indicators were investigated as systematic influences on stock returns. It was shown that, based on the foundations of the APT and the characteristics of the factor scores from the factor analysis on the security returns and the economic indicators, canonical correlation analysis is an approximate technique to link the stock market and the economic forces. The results using the UK data imply that there is a good correspondence between factor scores generated by the factor analysis on the UK security returns and on the UK economic indicators. The results using the US data show that there is also a fair correspondence, but lower than that for the UK data, between factor scores generated by the factor analysis on the US security returns and on the US economic indicators. The APT was also investigated in an international setting by considering the UK data and the US data together. The results show that the canonical correlation analysis successfully links the stock returns and economic forces. The conclusion of these empirical findings is that security returns are influenced by a number of systematic economic forces. The validity and applicability of the APT were also empirically evaluated. The regression results show that the explanatory power of the APT model is fairly good. The overall results obtained here appear to suggest that the APT pricing relationship is supported by the testing methodology. In addition, the international correlation structure of financial markets movements between the UK economy and the US economy has been analysed. On balance, the evidence favours the APT and there is available evidence of inter-market linkage between the UK and the US. Individual sets of economic variables have been identified which correspond most closely with the UK and the US stock market factors by using the canonical correlation analysis. The results, at least partially, contribute to the understanding of security market pricing.

This thesis presents five empirical papers investigating the issue of arbitrage trading of the FTSE 100 stock index futures. The first paper explores the effects of nonsynchronous trading on the spot index and develops a new technique as well as improving current methodologies for removing them. Studies in U. S. have shown that if the problem of non-synchronous trading is severe, the reported spot index is not reliable affecting the correct pricing of futures contracts. The second paper investigates the elasticity of supply of arbitrage in the futures market and the ability of the spot and the futures markets to respond to new information. It shows that arbitrage trading is initiated when spot prices largely drift apart from the futures prices. In addition, the futures prices tend to uncover new information before the spot prices, although this relationship is not stable over time. The analysis incorporates all possible channels of information to the -markets, which previous research fails to consider. The third paper analyses the behaviour of the deviation of the actual futures price from its theoretical value. Although this deviation is seen to have decreased its size over the years, it is still significant and persistent. Furthermore, it cannot be explained by the tax-timing option on pricing the futures or the effects of nonsynchronous trading. The fourth paper examines the presence, size and frequency of the profitability of the observed arbitrage opportunities by applying different transactions costs bounds to account for different classes of traders. After applying trading simulations arbitrage profitability is found to be frequent and significant, despite the fact that its size has decreased over the years. Finally, the thesis concludes with the fifth empirical paper which investigates the impact of futures trading on the spot and futures market volatility. It finds that arbitrage increases spot and futures price volatility but a volatile market brings the two markets closer on the whole, the thesis shows that although profitable arbitrage opportunities are not present in the long-run, they are not quickly removed in the short-run, allowing the spot and futures prices to drift apart.

This thesis increases our understanding of the book-to-market ratio via a detailed examination of how and when earnings are realised in relation to firms' "capitalisation" and "average useful-life of assets". Book-to-market ratios (BMRs) are regressed as a function of changes in market value of equity ratios for British industrial companies registered on the London Stock Exchange from 1987 to 1996. Data from a prior period (1976-1986) is also employed to stabilise for effects of earnings realisation before the regression period. The "average useful-life assets" for the firms in the sample determines the time horizon of the analysis. The path of abnormal earnings over this horizon reflects the pattern of expiration of the useful-lives of assets in place. The analysis finds that an accrual measurement effect dominated in BMRs increases over the analysis period and also that accrual measurement is more influential in BMRs for firms with short than with long "average useful-life assets". Changes in market value ratios are found to inform about future earnings up to at least six years, except for highlycapitalised firms with long useful-life assets (for which the relationship lasts up to 4 years). The length of the informative period is found to be inverse to the average useful-life of firms' assets. The effect of differences between annual changes in market value of equity ratios on BMRs across time diminishes soon (two years) after the initial market shock' occurs. Long useful-life assets have no further effect on BMRs evolution at more distant lags. Contrary to previous research (in the USA), changes in market value of equity ratios (for UK firms) are found to be associated more with short than with long useful-life assets. Although not specially tested for, this result supports the notion of "short-terminism" of which the UK stock market is sometimes accused. The apparent "short-terministic" outlook by investors in UK firms coincides with improved predictability of BMRs in the UK compared with the US market. The high coefficients of determination from changes in market value of equity ratios as a function of BMRs, identified in the study, motivates a further test for a prediction model which is able to predict 29.2% of the variation in book-tomarket value of equity ratios 8 years in advance.

It is widely accepted that the primary objective or goal of a firm is to maximise the value of its shareholders' equity. An increase in wealth increases the satisfaction of any financial market participant, or in this case, of any shareholder. In management's attempts and decision-making to increase shareholder value, they continuously influence, directly or indirectly, those variables that affect shareholder wealth. In order to increase shareholder wealth in the most efficient way, it becomes necessary to quantify the effect that each of these relevant variables has on shareholder wealth. If the value created from the assets under the control of management is to be improved, the answer lies partly in determining the real drivers of value and focusing management attention on these. The objective and value of this study lies in the fact that a meaningful mathematical relationship between these variables and shareholder value is developed. In the literature part of this study, the main emphasis fell on drawing a distinction between the accounting-based and the economic-based models of determining shareholder value. It has been demonstrated that the economic-based models, and Economic value added (EVA) in particular, have distinct advantages in determining value created (or destroyed) by the management of a company. Whilst EVA is the best internal measure of shareholder value creation. Market value added (MVA) is the external method of determining shareholder's wealth. After the variables that can determine shareholder value as represented by the EVA of a company had been identified, the research methodology, including the statistical techniques as well as the boundaries of the sample used, were set out. The results of the empirical analyses were reported and compared with the theoretical principles. The correlation between MVA and (discounted) EVA was the highest of all the variables and was at its most positive when inflation adjustments to the data had been made. Slightly lower positive correlations were also obtained from more traditional measures such as return on assets (ROA), return on equity (ROE), earnings per share (EPS) and dividends per share (DPS). Once it has been determined that EVA is arguably the best indicator of value that has been created or destroyed by management, it is necessary to analyze EVA in terms of its variables or components. If one turns to the stepwise regression analyses done with EVA as dependent variable with a number of independent variables, various income statement ratios provided the best explanation (as represented by r2 ). No meaningful results were obtained from a number of balance sheet ratios. Using these results as a basis, recommendations to management on managing and creating shareholder wealth in the most efficient way is made. Practising valuemaximization is not easy, but EVA and its variables can be the answer. AFRIKAANS : Dit is 'n algemeen aanvaarde beginsel dat die primere doelwit van 'n onderneming die maksimering van aandeelhouers welvaart is. 'n Verhoging in welvaart lei tot verhoogde nutsbevrediging van enige deelnemer in finansiele markte, in die geval die aandeelhouers van 'n onderneming. In bestuur se pogings en besluitnemingsaksies om aandeelhouers welvaart te verhoog, word die veranderlikes wat aandeelhouers welvaart bepaal, voortdurend beïnvloed. Om aandeelhouers welvaart op die mees doelmatige wyse te verhoog, is dit nodig om te kwantifiseer welke effek elkeen van hierdie veranderlikes op aandeelhouers welvaart uitoefen. lndien die waardetoevoeging van die kapitaal onder beheer van bestuur verbeter moet word, le deel van die oplossing in die bepaling van daardie veranderlikes wat aandeelhouers welvaart bepaal, en om gevolglik bestuur se fokus op daardie veranderlikes te vestig. Die doelwit van hierdie studie is dus om 'n kwantifiseerbare verwantskap tussen hierdie veranderlikes en aandeelhouers welvaart te ontwikkel. In die literatuur gedeelte van hierdie studie val die klem op die onderskeid wat getref word tussen die rekeningkundige metodes om aandeelhouers welvaart te bepaal, in teenstelling met die sogenaamde ekonomiese gebaseerde metodes. Daar word getoon dat die ekonomiese gebaseerde metodes, en in die besonder ekonomiese waarde toevoeging (in Engels, "Economic value added" , of "EVA"), besondere voordele het bo enige ander metode om die waarde wat bestuur toegevoeg (of vernietig) het, te bepaal. Terwyl EVA as interne maatstaf van aandeelhouers welvaart dien, is markwaarde toevoeging (in Engels "Market value added" of "MVA") die eksterne of markgedrewe metode om waarde te bepaal. Nadat die veranderlikes wat aandeelhouers welvaart soos verteenwoordig deur EVA bepaal is, is die navorsings metodologie, insluitend die statistiese tegnieke wat gebruik is sowel as die bepaling van die steekproef, behandel. Die resultate van die empiriese analise is bespreek en vergelyk met die teoretiese beginsels. Die korrelasie tussen MVA en (verdiskonteerde) EVA was die hoogste en was selfs grater wanneer inflasie aanpassings aan die data gemaak was. Laer positiewe korrelasies is gevind tussen MVA en die meer tradisionele maatstawwe ter bepaling van aandeelhouers welvaart soos opbrengs op totale bates, opbrengs op aandeelhouers fondse, verdienste per aandeel en dividend per aandeel. Nadat daar bewys is dat EVA die beste aanwyser is van waarde wat deur bestuur geskep of vernietig is, is dit nodig om EVA te analiseer in terme van sy veranderlikes of komponente. lndien EVA as afhanklike veranderlike en 'n aantal onafhanklike veranderlikes by wyse van 'n stapsgewyse regressie analise ontleed word, is dit verskeie inkomste staat verhoudingsgetalle wat die beste verduideliking (soos verteenwoordig deur r2) van aandeelhouerswelvaart gee. Geen betekenisvolle resultate kon van verskeie balansstaat verhoudingsgetalle verkry word nie. Met hierdie resultate as basis word verskeie aanbevelings aan bestuur gemaak oor die bestuur en toevoeging van waarde vir aandeelhouers op die mees doelmatige wyse. Die beoefening van waardemaksimering is nie maklik nie, maar EVA en sy veranderlikes kan die taak vergemaklik. Copyright / Thesis (DBA)--University of Pretoria, 2012. / Business Management / unrestricted

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