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Are dividend changes and share repurchases a good predictor of future changes in earnings?Mtshali, Nompilo January 2016 (has links)
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 Commerce in Finance. Johannesburg, South Africa March 2016 / The study examined whether: share repurchase events and changes in dividends were good predictors of future changes in earnings. The research also investigated how the South African market reacted to share repurchase events in the short-run. Using INET BFA, data for 226 dividend paying companies and 55 share repurchasing companies, trading on the JSE during the period 2003 to 2013, was collected.
Dividend theory suggests that changes in dividends convey information content about the future earnings of the firm. After testing this theory, limited support was found for this notion. Firms that had increased dividends at (T0) showed significant earnings increases in that year. Nonetheless, some of the dividend increasing firms showed no subsequent unexpected earnings growth at (T1) and (T2). While the size of the dividend increase had a strong positive relationship with current earnings; it failed to predict future earnings with any consistency. Firms that had cut dividends at (T0) experienced a reduction in earnings in that year but showed increases in earnings at (T1). However, consistent with Lintner‘s (1956) model on dividend policy, firms that had increased their dividends were less likely to experience a reduction in earnings, as opposed to the no-change or dividend decrease groups.
A linear regression model was employed in testing whether share repurchases were useful in predicting changes in future earnings. According to the results reported in the regression model, share repurchases are a good predictor of future changes in earnings. The study at hand then went on to explore how the South African market reacted to share repurchases. Through the utilisation of the Market Model-Event Study Methodology (with an event window of 41 days, 20 days prior and 20 days post the event), the findings of the report indicated that the South African market reacted positively to share repurchases. This was evidenced through positive: share price returns, abnormal returns and average abnormal returns, post the event. Nonetheless, cumulative average abnormal returns remained negative in the short-run. In addition, the results showed that firms engage in share repurchase activities
in order to signal that the stock is undervalued. There was an observable trend of declining share prices before the share repurchase event.
A few recommendations were proposed following the results obtained. Dividends are unable to predict changes in earnings. Therefore, a dividend cut, is not an indication that a company‘s earnings will decrease in the future or that the managers of that company foresee a decline in future earnings. From a share repurchase point of view, managers of JSE listed companies should not only focus on the short-term benefits of share repurchase events. These benefits are generally short lived as shares do return to their falling state, however authors such as Wesson, Muller and Ward (2014) have shown that the benefits of share repurchase events can also be observed in the long- run, A further point to note for both investors and managers of JSE listed companies is that share repurchases are a good predictor of future earnings. Therefore, it is very confusing for investors when a company announces a share repurchase event but does not follow through with it. / MT2017
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Comparative performance of socially responsible and conventional portfolios in South AfricaBondera, Shingirirai 29 July 2014 (has links)
There is a widespread view amongst private investors and public investment corporations that socially responsible investing leads to substandard returns relative to Conventional investing. Conventional portfolios are portfolios with sin stocks or lowly ranked stocks in terms of the Environmental, Social and Governance (ESG) factors whilst Socially responsible Investments (SRI) are portfolios with stocks regarded as socially desirable with high ESG rankings. We constructed two portfolios using the JSE stocks and the Bloomberg rankings in accordance with the ESG rankings guidelines. As an additional analysis, we also assessed the performances of the JSE socially responsible index, JSE TOP 40 and the FTSE JSE ALL SHARE. Using different performance measures such as the CAPM, Fama French, Carhart 4 factor model, Sharpe ratio, and Treynor ratio; we found interesting evidence contrary to the beliefs of many investors.
No statistically significant difference in performance is found between our self-constructed portfolios, and the different indexes such as JSE SRI, JSE TOP 40 and the FTSE JSE indexes. We have separated beliefs from reality/ facts in this paper that socially conscious investors can perform well in South Africa.
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A comparative analysis of the performance of the property funds listed on the Johannesburg Stock Exchange.Potelwa, Ziyanda 28 August 2013 (has links)
Listed property entities on the Johannesburg Stock Exchange fall under the category of ‘Financials - Real Estate’. There are four types of property entities that a prospective investor can consider namely: Property Unit Trusts, Property Loan Stock Companies, Real Estate Holding and Development Companies and Real Estate Investment Trusts. The listed property sector allows investors to enter the property investment market in a uniquely affordable and secure way without the added risk, expense and administration that comes with direct property investment.
This study evaluates the investment performance of the various property fund types through the implementation of Jensen’s alpha, the Sharpe ratio and Treynor ratio in an effort to establish whether there is a significant difference in the returns that can be obtained from the diverse funds given the associated risks. An analysis of the total returns and standard deviation of the property industry shows that the real estate market is affected by changes that take place in the macro economy. It is also investigated whether there is a differential risk associated with investing in these funds.
We find that there is no significant difference between the performances of the various funds and there is no differential level of risk associated with investing in the property funds. An analysis of the fluctuation of total returns and standard deviation of the property funds over the eleven year period shows that the property sector is affected by changes in economic conditions however the changes are not enough to cause colossal volatility. For instance, the global recession of 2008 had an impact on the property industry returns but the sector has since made a steady recovery.
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Factors that influence mandatory disclosure practices of firms listed on the JSENamayanja, Regina 17 October 2012 (has links)
No abstract on disk
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Liquidity and the convergence to market efficiencyYoung, Nicara Romi January 2017 (has links)
Master of Commerce (Finance) in the Finance Division, School of Economic and Business Sciences at the University of the Witwatersrand, Johannesburg, 6 September 2017 / The aim of this study is to investigate the relationship between market liquidity changes on the Johannesburg Stock Exchange (JSE), and the market’s degree of efficiency. Market efficiency is characterised in terms of two philosophies: Fama’s (1970) Efficient Markets Hypothesis, and Shiller’s (1981; 2003) informational efficiency designation. Efficiency was tested using measures of return predictability, a random walk benchmark, and price volatility; liquidity was measured using market turnover. The tests were conducted on JSE Top 40 shares across three regimes, spanning January 2012 – June 2016. The regimes are demarcated by two structural breaks in the JSE’s microstructure: the 2012 trading platform upgrade, and the 2014 colocation centre launch. The results show that past order imbalances are a significant predictor of daily returns, although the significance of this predictability has dissipated over time. Return predictability is not influenced by liquidity. In fact, there is evidence that illiquidity weakens return predictability. Prices were closer to random walk benchmarks during the third regime. In consideration of informational efficiency, during the latter two regimes price volatility is greater during trading versus non-trading hours. This is coupled with an emergence of nonlinear return dependence, which is indicative of greater mispricing. Thus, over the three regimes, market efficiency improved in the sense of the EMH, but informational efficiency deteriorated. The study contributes to the field by: introducing an inverse measure of market efficiency; providing insight into the measure’s time variation and relation to liquidity; and demonstrating that market efficiency tests should incorporate its dual meanings, enabling richer understanding of their intersection. / GR2018
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Evaluation of gold as an investment asset: the South African contextPule, Barrend Pule 26 July 2013 (has links)
Thesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2013. / This study examines potential benefits of investing in various gold investment vehicles in terms of
risk and return from a typical South African investor’s perspective. Furthermore, the study examines
the relationship between gold price and South African macroeconomic variables. Data used in the
study comprises of monthly closing share price data of JSE listed gold mining companies, gold
price, Krugerrand coin, NewGold ETF, FTSE/JSE all share index, gold mining index, unit trust
index (gold & precious metals), real GDP, rand/dollar exchange rate, repo rate and CPI. It was found
that gold bullion produced superior abnormal returns and yielded greater capital growth compared to
the JSE all share index. However, the JSE all share index exhibit lower volatility compared to gold
bullion. Abnormal returns for JSE listed gold mining companies tend to differ substantially from
gold bullion abnormal returns. Gold mining companies exhibit added risk which cannot be attributed
to the gold bullion. Gold has a potential to reduce systematic risk when added to a portfolio of
stocks. A multiple regression model was estimated which relates gold price to South African
macroeconomic variables. It was found that gold price depends on real GDP and rand/dollar
exchange rate.
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The efficient market hypothesis in developing economies: an investigation of the Monday effect and January effect on the Zimbabwe Stock Exchange post the multi-currency system (2009-2013): a Garch approach analysisParadza, Abba 04 August 2016 (has links)
A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF MANAGEMENT IN FINANCE AND INVESTMENTS
Of
WITS BUSINESS SCHOOL
March 2015 / The paper investigates the presence of two calendar anomalies; the day of the week or Mon-day effect and the Month of the year or January effect by modelling volatility of the industrial index returns on the Zimbabwe Stock Exchange (ZSE) pre and post the multi-currency sys-tem. The procedure is carried out by employing non-parametric models from the Generalized Autoregressive Conditional Heteroscedastic (GARCH) family; GARCH, Exponential GARCH (EGARCH) and Threshold GARCH (TGARCH). The models are better suited in modelling daily and monthly seasonality as they can capture the time-varying volatility of the stock return data. The period of analysis is from the January 2004 to April 2008 (pre-dollarization period) and the second period of analysis is from the post-currency reform which runs from February 2009 to December 2013.
The results obtained from the study are mixed. The day of the week test finds significantly negative returns on Monday, Wednesday and Friday pre the currency reform whilst a nega-tive Wednesday effect is found post the currency reform period. The TGARCH model is the only one that captures a negative monthly effects on all the months of the year with the ex-ception of January pre the currency reform period. No monthly effects are found on the ZSE post the currency reform period by all models employed. The absence of monthly seasonality effects and the reduced number of days of day of the week effects from all the GARCH mod-els employed can infer that the currency reform had a positive impact which translated to market efficiency.
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Stock market development in Africa: is there a need for a cross-regional collaborative stock exchange?Letlape, Bontle Virginia 21 February 2013 (has links)
This paper explores the relationship between stock market development and economic growth in
Africa. It provides a theoretical basis for establishing the channel through which stock market
affect economic growth and this is empirically examined by using regression analysis to test if
indeed there is such a relationship. Three stock market indicators, namely market capitalization
as a percentage of GDP, turnover ratio and numbers of listed shares, are used to test whether
they have any impact on economic growth, together with other explanatory variables of growth
such as foreign direct investment, inflation and credit. The study uses data on four countries:
Kenya, Nigeria, Egypt and South Africa for the period 1991-2010. Furthermore, the study
investigated whether a collaborative regional cross-listing will improve the stock market
development of the country of secondary listing. Dummy variables and interactive variables are
used in regressions to test for collaborative relationships between the exchanges in the region.
The results show that indeed there is an association between stock market development and
economic growth. Results also show that cross-listing within a region can boost stock market
development, which in turn boosts economic growth. Africa does not have a lot of cross-listings
but from this paper, the evidence suggests that it is a path worth exploring.
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A comparison of the forecasting accuracy of the downside beta and beta on the JSE top 40 for the period 2001-2011O'Malley, Brandon Shaun 06 March 2014 (has links)
The purpose of this research report is to determine whether the use of a Downside risk variable – the D-Beta – is more appropriate in the emerging market of South Africa than the regular Beta used in the CAPM model. The prior research upon which this report expands, performed by Estrada (1999; 2002; 2005), focuses on using Downside risk models mainly at an overall country (market) level. This report focuses exclusively on South Africa, but could be applicable to various other emerging markets. The reason for researching this topic is simple: Investors – not just in South Africa, but all across the world – think of risk differently to the way that it is defined in terms of modern portfolio theory. Beta measures risk by giving equal weight to both Upside and Downside volatility, while in reality, investors are a lot more sensitive to Downside fluctuations.
The Downside Beta takes into account only returns which are below a certain benchmark, thereby allowing investors to determine a share’s Downside volatility. When the Downside Beta is included as the primary measure of systematic risk in an asset pricing model (such as the D-CAPM), the result is a model which can be used to determine cost of equity, and make forecasts about share returns. The results of this research indicate that using the D-CAPM to forecast returns results in improved accuracy when compared to using the CAPM. However, when comparing goodness of fit, the CAPM and the D-CAPM are not significantly different. Even with this conflicting result, this research shows that there is indeed value in using the D-Beta in South Africa, especially during times of economic downturn.
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An empirical evaluation of capital asset pricing models on the JSESacco, Gianluca Michelangelo 07 March 2014 (has links)
The Capital Asset Pricing Model (CAPM), as introduced by Markowitz (1952), Sharpe (1964), Lintner
(1965), Black (1972) and Mossin (1966), offers powerful and intuitively pleasing predictions about
the risk and return relationship that is expected when investing in equities. Studies on the empirical
strength of the CAPM such as Fama and French (1992), however, indicate that the model does not
reflect the share return actually obtained on the equity market. Attempting to improve the model,
Fama and French (1993) enhanced the original CAPM by incorporating other factors which may be
relevant in predicting the return on share investments, specifically, the book – to – market ratio and
the market capitalisation of the entity. Carhart (1997) further attempted to improve the CAPM by
incorporating momentum analysis together with the 3 factors identified by Fama and French (1993).
This research report empirically evaluates the accuracy of the above three models in calculating the
cost of equity on the Johannesburg Stock Exchange over the period 2002 to 2012. Portfolios of
shares were constructed based on the three models for the purposes of this evaluation.
The results indicate that the book-to-market ratio and market capitalisation are able to add some
robustness to the CAPM, but that the results of formulating book – to – market and market
capitalization portfolios is highly volatile and therefore may lead to inconsistent results going
forward. By incorporating the short run momentum effect, the robustness of the CAPM is improved
substantially, as the Carhart model comes closest to reflecting what, for the purposes of this study,
represents the ideal performance of an effective asset pricing model. The Fama and French (1993)
and Carhart (1997) models therefore present a step forward in formulating an asset pricing model
that will hold up under empirical evaluation, where the expected cost of equity is representative of
the total return that can be expected from investing in a portfolio of shares. It is however
established that the additional factors indicated above are volatile, and this volatility may influence
the results of a longer term study.
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