Much work has been conducted on the signalling effect that a directors’ trade has on outsiders. This is based on the premise that insiders, or directors, shareholders and managers of companies have access to information about their companies that outsiders do not (Bhana, 2007; Fidrmuc, Goergen and Renneboog, 2006; Hodgson and van Praag, 2006), raising questions about the efficiency of markets (Fidrmuc, Goergen and Renneboog, 2004). Other research concludes that the greater the shareholding percentage or percentage control held by an insider, the greater would be their access to company information, and that this would lead directly to an increase in the strength of the signal to the market. Hillier and Marshall (2002) find that the abnormal returns occur most strongly where directors have increased their shareholding. Fidrmuc, Goergen and Renneboog in various studies found that the opposite is true, particularly for purchases, citing a perceived danger of increased entrenchment as the reason for this anomaly. This study will use the AltX of the JSE and attempt to show that there is a positive return on shareholder investment following an insider purchase and a negative return on investment following an insider sale as outsiders react to these signals and the information contained in these trades. This study will also attempt to prove that the percentage control of a director who purchases their own shares has an inverse relationship to the abnormal returns. This study uses the event study methodology and analyses the abnormal returns in the event windows extending back to twenty days prior to the events and for the following twenty days after the event. Abnormal returns are modelled using the control portfolio model of Mordant and Muller (2003) which is based on the Fama and French Three-Factor model. These abnormal returns are then tested for significance using T-tests and the bootstrapping technique. Relationships between shareholding interest and returns is established using linear correlation. No statistical significance could be found on the returns compared to the market following either a purchase or sale insider trade. However, it was found that the reaction to purchases was significantly higher than the reaction to sales, and results indicate that the reaction to sales on the AltX of the JSE leads to abnormal losses in the short term. This study finds that there is no indistinguishable relationship between shareholding and returns that are different to zero. While it is clear that other bourses internationally demonstrate clear evidence of the existence of signals contained in insider trades, and other South African studies find corroborative evidence on the JSE main board, there is no evidence that insider trades on the AltX contain any signalling value in them for outsiders, particularly pertaining to purchases. Although not economically significant, sales do suggest that there is information contained in the trade, but is this reaction in the market due to the information contained in the trade, or simply due to a culture of trading on market sentiment? / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

The objective of this thesis is to examine an approach to copper mining security analysis which measures the quality and projects the market value of the common shares. The accepted approach is the Multiplier Theory as advanced by Graham & Dodd and represented by the formula: Estimated market value equals the multiplier times the sum of the projected dividends paid and one-third of the projected earnings all adjusted for asset values. General application of the theory is qualified to conform with pertinent tangible and intangible factors which influence the basic components of the formula. The basic components are defined and the range of adjustments necessary for the Intangible factors influencing the multiplier are developed before the tangible factors affecting the quality of the security are examined. The performance of the Copper Industry as compared with other industries is measured by the rate of return on the common stock. The securities of the three leading integrated United States' copper mining companies are appraised on this basis. The quality of these copper mining common stocks depends on the economics of the companies and the Copper Industry. An abundance of statistical data is examined to illustrate the body of knowledge required to appraise and project the costs, earnings and copper prices. A projection was made of the rate of return on a hypothetical investment in the common stocks of these companies. The projection incorporated the adjustments and the prevailing economic trends. The estimated future market value of the common shares was deduced by applying the projected components to the standard formula. The variations between the actual and the estimated rate of return on the hypothetical investment were beyond the limits which would have proven the approach to be conclusive. / Business, Sauder School of / Graduate

The two main questions arising from the problem of optimal bond portfolio management concern the formulation of an optimal trading rule and the specification of an appropriate dynamic risk measure in which to express portfolio objectives. We study these questions in two related essays: (l) a theoretical study of optimal trading policies in view of, as yet unspecified, portfolio objectives when trading is costly; and (2) an empirical, comparative study of several bond risk measures, proposed in the literature or in use by practitioners, for the government or default-free bond market. The theoretical study considers a delegated portfolio management setting, in which the manager optimizes a cumulative reward over a finite time period and where the reward rate increases with portfolio value and decreases with deviations from the given risk objectives. Trading is then often not worthwhile, as the possible gains from smaller objective deviations are offset by losses on account of transactions costs. This setting obviates the need for separate ex post performance evaluation. The trading problem is formulated as one of optimal impulse control in the framework of stochastic dynamic programming; this formulation improves upon prior results in the literature using continuous control theory. A myopic optimal trading rule is characterized, which is also applicable to time-homogeneous problems and more general preferences. An algorithm for its use in applications is derived. The empirical study applies the usual methods of stock market tests to the returns of constant risk bond portfolios. These portfolios are artificial constructs composed, at varying risk levels, of traded bonds on the basis of six different one or two dimensional risk measures. These risk measures are selected in order to obtain a cross-section of term structure variabilities; they include duration, short interest rate risk, long (13-year) interest rate risk, combined short and consol rate risks, duration combined with convexity, and average time-to-maturity. The sample period is the 1970s decade, for which parameter estimates for the risk measures— where necessary—are available from source papers. This period is known to be one with wide-ranging term structure movements and is therefore ideally suited for the tests of this paper. Portfolios are formed at two levels of diversification: bullet and ladder selection. We confirm that all of these risk measures are reasonably effective in capturing relevant bond market risk: the state space of bond returns has in all cases a low dimension (two or three), with only a single factor significantly priced. Best fit is found for portfolios selected by duration, the 13-year spot yield risk, and the two-dimensional short/consol rate risk, all of which consist predominantly of "long" rate risk. The short rate-based risk measure does not explain portfolio returns as well: it has difficulty discriminating between portfolios with long remaining times-to-maturity. Convexity, furthermore, adds nothing to the explanatory power of duration. Average time-to-maturity compares reasonably well with the above risk measures, provided the portfolios are well-diversified across the maturity spectrum; this lends some support to the use of yield curves. A strong diversification effect has also been found, to the extent that the returns on ladder portfolios are practically linear combinations of two or three of the portfolios, typically the lowest and highest risk portfolios in the one dimensional risk cases, with an intermediate portfolio added in the two-dimensional cases. Provided that diversified portfolios are used, the comparatively easy to implement duration measure is as good as any of the risk measures tested. / Business, Sauder School of / Finance, Division of / Graduate

This paper estimates both parametric and non-parametric proportional hazards models for a subset of Canadian mortgage-backed security data. The estimated parametric hazard function is then used to drive exogenous prepayments within an arbitrage-free model of the term structure of interest rates. Theoretical prices as well as option-adjusted spreads (OAS) are obtained for three different mortgage-backed securities using a Monte-Carlo simulation. Though no formal test is done to compare the ability of the different hazard models to explain observed market prices, the non-parametric baseline hazard is more consistent with the age-dependent prepayment provisions typical of most mortgage contracts in Canada. / Business, Sauder School of / Real Estate Division / Graduate

No description available.

No description available.

No description available.

In 1985, Merrill Lynch introduced Liquid Yield Option Notes, or LYONS into the exotic derivative corporate capital market. Based on a plain vanilla bond, its features were changed to accommodate risk protection for issuers and holders. The hybrid bond is both callable and puttable, it is convertible into common stock, and issued as a zero coupon discount bond. The put and call options are intended to reduce short-term interest rate risk corporations and holders are exposed to. Smith and Smithson (1990) propose that LYONs were introduced to reduce underinvestment, asset substitution, and claim dilution. If LYONs were designed to reduce agency costs and align stockholder/bondholder interests several factors can be associated with these securities according to Nash {1994). Identifying firms likely to issue these securities can be found by examining several financial ratios including, debt to equity, leverage, standard deviation of earnings, and debt rating. It is important to know what type of firm is issuing these securities and if stated objectives align with the empirical evidence embedded in the contractual elements. Few studies have been done in the areas of exotic derivative options but as the amount of capital raised through LYONs approaches $50 billion, it is important for investors to become familiar with this instrument, as many institutional investors for pension funds, and other mutual accounts buy into these instruments. Updating the work of Nash (1994) to include issues of LYONs after 1993 to present will test the indicators defined by his contracting-cost explanation for the existence of LYONs. Further knowledge can be gained by assessing more recent issues. Analyzing how recent interest rate, and federal government regulation of the exotic derivative securities market provides insight into future derived offerings and objectives. This thesis will describe the environment and provide insight into the motivations for bond issuers and holders. My intent is to make an assumption about the outcome versus stated objectives. With a sample set of 20 contracts randomly selected from years 1985-2002, I examine several variables within the contracts and the corporations issuing them. Factors such as yield, maturity, face value, conversion premium, and industry are used to analyze the contracts. Factors such as debt to equity, leverage, standard deviation of earnings, are used to determine a correlation in the likelihood of issuing LYONs. Trading history is examined to determine which risk is best protected against by the attached put and call options, and whether corporations or investors are typically realizing the benefits.

Univ., Diss.--Groningen, 2005.

published_or_final_version / Economics and Finance / Master / Master of Economics