Thesis (MComm)--Stellenbosch University, 2002. / ENGLISH ABSTRACT: This assignment sets out to address the concept of equity duration, where equity duration is
viewed as a measure of the interest rate sensitivity of common stock's market value. The
traditional use of standard dividend discount models, results in extremely long duration
estimates for equities - in the order of 10 years for income stocks to 25 years and more for
growth companies whose cash flows are not expected to materialize until some future period.
Leibowitz (1986) identified an alternative approach for assessing equity duration empirically.
These empirical estimates of actual stock price sensitivity to underlying changes in interest
rates imply that equities behave as if they are much shorter duration instruments.
Various attempts have been made to reconcile the difference between theoretical predictions
of equity duration and empirical findings. The differences in duration of assets in place and
growth opportunities are given as a possible reason for the above mentioned differences. It is
argued that investment opportunities are similar to options a company has. These option-like
characteristics of growth opportunities may alter the basic relationship between equity
valuation and interest rate changes.
The option framework suggests that the duration of growth companies may be shorter (not
longer) than those of assets in place. The results from option theory can however not be
applied directly to growth options, since some of the assumptions may not be valid in the
case of growth options. The presence of these growth options makes it virtually impossible
to calculate equity duration theoretically.
This study empirically tests the relationship between growth opportunities and equity
duration by focussing the attention on the interest rate sensitivity of South African growth
companies.
The following hypotheses regarding equity duration and growth companies are postulated:
• There is a significant difference in interest rate sensitivity between growth companies and
low-growth companies.
• There is a significant difference between duration of growth companies measured using
nominal interest rates and duration of growth companies using real interest rates. All non-mining companies on the Johannesburg Securities Exchange SA, for the period 1980
to 2000, were analysed. These companies were sorted into different portfolios that reflected
their growth opportunities. Market capitalisation, book-to-market and price-earnings ratios
were used as proxies to rank companies according to growth opportunities.
The results from univariate regressions suggest positive duration for common equities. The
negative relationship between equity returns and changes in nominal interest rates are
independent of size, book-to-market or price-earnings ratios of the sampled companies.
Including the market factor as an independent variable results in markedly different equity
duration. The duration is correlated with size, as both coefficients and t-statistics increase
when moving from small companies to larger companies. In addition, the small companies
have negative not positive duration, as was the case for simple univariate regressions.
There is also some evidence that high growth portfolios, as measured by low book-to-market
and high price-earnings ratios, are less sensitive to interest rate changes than low growth
portfolios.
Employing all three Fama and French's factors, there is no longer a cross-sectional
dependence on company size, with the mean duration being close to zero and statistically
insignificant in virtually all cases. Also, when dividing changes in the nominal interest rate
into changes in real rates and changes in inflation, it does not significantly affect the
estimates of equity duration.
The author found no evidence to support the stated hypotheses, when employing the Fama
and French's three factor model. This may mean that the relationships are subsumed in the
Fama and French risk factors. / AFRIKAANSE OPSOMMING: Hierdie werkstuk bestudeer die konsep van die duur van gewone aandele (equity duration),
waar die duur van 'n gewone aandeel gedefinieer word as 'n maatstaf van die rentekoerssensitiwiteit
van die markwaarde van die aandeel. Die tradisionele gebruik van standaard
dividend verdiskonterings modelle, lei tot uiters lang duur beramings vir gewone aandele - in
die orde van 10 jaar vir inkomste aandele tot 25 jaar en meer vir groei ondernemings wie se
kontantvloei nie verwag word om te materialiseer voor 'n sekere toekomstige datum nie.
Leibowitz (1986) identifiseer 'n alternatiewe empiriese benadering vir die beraming van
gewone aandeel duur. Hierdie empiriese bepaling van die sensitiwiteit van die werklike
aandeelprys tot onderliggende veranderings in rentekoerse, impliseer dat gewone aandele
reageer asof hulle baie korter duur instrumente is.
Verskeie pogings is aangewend om die verskille tussen teoretiese voorspellings van gewone
aandeel-duur en empiriese bevindings te rekonsilieer. Die verskille tussen duur van bates in
plek en groei-geleenthede word aangevoer as 'n moontlike rede vir bogenoemde verskille.
Dit word geargumenteer dat investeringsgeleenthede soortgelyk is aan die opsies wat 'n
onderneming het. Hierdie opsie-soortgelyke eienskappe van groei-geleenthede kan die
basiese verhouding tussen gewone aandeel waardasie en rentekoers verandering wysig.
Die opsie raamwerk dui daarop dat die duur van groei-ondernemings korter kan wees (en nie
langer nie) as die van bates in plek. Die resultate van opsie teorie kan egter nie direk
toegepas word op groei-opsies nie, aangesien sekere van die aannames nie geldig mag wees in
die geval van groei-opsies nie. Die teenwoordigheid van hierdie groei-opsies het tot gevolg
dat dit feitlik onmoontlik is om gewone aandeel-duur teoreties te bereken.
Die studie toets empiries die verhouding tussen groei-geleenthede en gewone aandeel-duur
deur te fokus op die rentekoers sensitiwiteit van Suid Afrikaanse groei-ondernemings. Die
volgende hipoteses met betrekking tot die gewone aandele duur en groei-ondernemings word
gestel:
• Daar is 'n betekenisvolle verskil in rentekoers sensitiwiteit tussen groei-ondernemings en
lae groei-ondernemings. • Daar is 'n betekenisvolle verskil tussen duur van groei-ondernemings gemeet deur
gebruik te maak van nominale rentekoerse en duur van groei-ondernemings deur gebruik
te maak van reële rentekoerse.
Alle nie-myn ondernemings op die Johannesburg Sekuriteite Beurs SA, vir die periode 1980
tot 2000, is ontleed. Hierdie ondernemings is gesorteer in verskillende portefeuljes wat hulle
groei geleenthede reflekteer. Markkapitalisasie, boek-tot-markwaarde en prysverdienste
verhoudings is gebruik as maatstawwe om ondernemings te rangskik volgens groeigeleenthede.
Die resultate van enkel veranderlike regressies dui positiewe duur aan vir gewone aandele.
Die negatiewe verhouding tussen aandeelopbrengs en verandering in nominale rentekoerse is
onafhanklik van grootte, boek-tot-markwaarde of prysverdienste verhoudings vir die
getoetste ondernemings. Indien die markfaktor ingesluit word, as 'n onafhanklike
veranderlike, lei dit tot opvallend verskillende gewone aandeel-duur. Die duur is gekorreleer
met grootte, met beide koëffisiënte en t-statistieke wat styg wanneer beweeg word van klein
ondernemings tot groter ondernemings. Addisioneel, die klein ondernemings het negatiewe,
nie positiewe duur, anders as in die geval van eenvoudige enkel veranderlike regressies. Daar
is ook bewyse dat hoë groei portefeuljes, soos gemeet deur lae boek-tot-markwaarde en hoë
prysverdienste verhoudings, minder sensitief is vir rentekoers veranderings as lae groei
portefeuljes.
Met die aanwending van al drie Fama en French se faktore is daar nie meer kruis-selektiewe
afhanklikheid (cross-selectional dependence) op ondernemingsgrootte aanwesig nie, met die
gemiddelde duur wat naby nul is en statisties onbedeidend in feitlik all gevalle is. Wanneer
die verandering in die nominale rentekoers verdeel word in veranderings in reële koerse en
veranderings in inflasie, beïnvloed dit ook nie betekenisvol die bepaalde gewone aandeel
duur nie.
Die outeur het met die gebruik van die Fama & French drie faktor model geen bewyse gevind
wat die vermelde hipoteses staaf nie. Dit mag beteken dat die rente-risiko verwantskappe in
die Fama en French risiko faktore vervat is.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/53110 |
| Date | 12 1900 |
| Creators | Barnard, Ian |
| Contributors | De Villiers, J. U., Stellenbosch University. Faculty of Economic & Management Sciences . Dept. of Business Management. |
| Publisher | Stellenbosch : Stellenbosch University |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | Unknown |
| Type | Thesis |
| Format | 173 p. |
| Rights | Stellenbosch University |
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