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Effects of exchange rate volatility on the stock market: a case study of South Africa

  • Authors: Mlambo, Courage
  • Date: 2013
  • Subjects: Foreign exchange rates -- South Africa , Currency question -- South Africa , Free trade -- South Africa , Capital movements -- South Africa , Cointegration -- South Africa , Investments, Foreign , International trade , Stock exchanges -- South Africa , South Africa -- Economic policy
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11468 , http://hdl.handle.net/10353/d1007125 , Foreign exchange rates -- South Africa , Currency question -- South Africa , Free trade -- South Africa , Capital movements -- South Africa , Cointegration -- South Africa , Investments, Foreign , International trade , Stock exchanges -- South Africa , South Africa -- Economic policy
  • Description: This study assessed the effects of currency volatility on the Johannesburg Stock Exchange. An evaluation of literature on exchange rate volatility and stock markets was conducted resulting into specification of an empirical model.The Generalised Autoregressive Conditional Heteroskedascity (1.1) (GARCH) model was used in establishing the relationship between exchange rate volatility and stock market performance. The study employed monthly South African data for the period 2000 – 2010. The data frequency selected ensured an adequate number of observations. A very weak relationship between currency volatility and the stock market was confirmed. The research finding is supported by previous studies. Prime overdraft rate and total mining production were found to have a negative impact on Market capitalisation. Surprisingly, US interest rates were found to have a positive impact on Market capitalisation. This study recommended that, since the South African stock market is not really exposed to the negative effects of currency volatility, government can use exchange rate as a policy tool to attract foreign portfolio investment. The weak relationship between currency volatility and the stock market suggests that the JSE can be marketed as a safe market for foreign investors. However, investors, bankers and portfolio managers still need to be vigilant in regard to the spillovers from the foreign exchange rate into the stock market. Although there is a weak relationship between rand volatility and the stock market in South Africa, this does not necessarily mean that investors and portfolio managers need not monitor the developments between these two variables.
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  • Date Issued: 2013

The impact of stock market development on economic growth: evidence from South Africa

  • Authors: Vacu, Nomfundo Portia
  • Date: 2013
  • Subjects: Stock exchanges -- South Africa , Economic development -- South Africa , Stocks -- Economic aspects -- South Africa , South Africa -- Economic conditions , Stock market development , Economic growth , South Africa
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11655 , http://hdl.handle.net/10353/d1006983 , Stock exchanges -- South Africa , Economic development -- South Africa , Stocks -- Economic aspects -- South Africa , South Africa -- Economic conditions , Stock market development , Economic growth , South Africa
  • Description: The main objective of this study is to examine the long run relationship between stock market development and economic growth in the case of South Africa. The study used quarterly data covering the period from 1990Q1 to 2010Q4. To empirically test the link between the two variables, the study used the Johnson’s cointegration approach and Granger causality so as to test the direction of the relationship. The Vector Error Correction Model was also employed to capture both short run and long run dynamics. Generally, the results reveal that a long run relationship exists between the two variables and the causality flows from economic growth to stock market development. Also, the extent to which of stock market development impacts on growth is statistically weak.
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  • Date Issued: 2013

Value and size investment strategies: evidence from the cross-section of returns in the South African equity market

  • Authors: Barnard, Kevin John
  • Date: 2013
  • Subjects: Financial risk -- South Africa , Saving and investment -- South Africa , Stock exchanges -- South Africa , Investments -- Psychological aspects , Investments -- Decision making , Value premium , Size effect , Rational finance , Behavioural finance , South African equity markets
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:874 , http://hdl.handle.net/10962/d1001606 , Financial risk -- South Africa , Saving and investment -- South Africa , Stock exchanges -- South Africa , Investments -- Psychological aspects , Investments -- Decision making
  • Description: Value and size related equity investment strategies are supported by a large body of empirical research that shows a persistent premium, both longitudinally and crosssectionally. However, the competing rational and behavioural finance explanations for the success of these strategies are a subject of debate. The rational explanation is that the premium earned on value shares or shares of small companies can be attributed to higher risk. Behaviouralists argue that such shares are not riskier and attribute the premium to cognitive errors and biases in human decision making. The purpose of this study is to determine, firstly, whether the value and size premium exist in South Africa during the period July 2006 to June 2012, which includes one of the worst equity market crises in history. Secondly, this study sets out to determine whether the premium earned on value and size strategies are adequately explained by the principles of rational finance theory. To provide evidence regarding the existence of the value premium and size effect, returns are analysed, cross-sectionally, on portfolios of shares sorted by value and size. For evidence of a rational explanation, returns are regressed on value and size variables, and the relative riskiness of value and small companies is analysed. The results show evidence of a value premium in portfolios of small companies, but not big companies. The size effect is found not to be statistically significant. While regressions do show significant relationships between value and size variables and returns, these variables are found not to be associated with higher levels of risk. The conclusion is that the evidence does not support a rational, risk based explanation of the returns
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  • Date Issued: 2013

An analysis of the long run comovements between financial system development and mining production in South Africa

  • Authors: Ajagbe, Stephen Mayowa
  • Date: 2011
  • Subjects: Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:955 , http://hdl.handle.net/10962/d1002689 , Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
  • Description: This study examines the nature of the relationship which exists between mining sector production and development of the financial systems in South Africa. This is particularly important in that the mining sector is considered to be one of the major contributors to the country’s overall economic growth. South Africa is also considered to have a very well developed financial system, to the point where the dominance of one over the other is difficult to identify. Therefore offering insight into the nature of this relationship will assist policy makers in identifying the most effective policies in order to ensure that the developments within the financial systems impact appropriately on the mining sector, and ultimately on the economy. In addition to using the conventional proxies of financial system development, this study utilises the principal component analysis (PCA) to construct an index for the entire financial system. The multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) was then used to estimate the relationship between the development of the financial systems and the mining sector production for the period 1988-2008. The study reveals mixed results for different measures of financial system development. Those involving the banking system show that a negative relationship exists between total mining production and total credit extended to the private sector, while liquid liabilities has a positive relationship. Similarly, with the stock market system, mixed results are also obtained which reveal a negative relationship between total mining production and stock market capitalisation, while a positive relationship is found with secondary market turnover. Of all the financial system variables, only that of stock market capitalisation was found to be significant. The result with the financial development index reveals that a significant negative relationship exists between financial system development and total mining sector production. Results on the other variables controlled in the estimation show that positive and significant relationships exist between total mining production and both nominal exchange rate and political stability respectively. Increased mining production therefore takes place in periods of appreciating exchange rates, and similarly in the post-apartheid era. On the other hand, negative relationships were found for both trade openness and inflation control variables. The impulse response and variance decomposition analyses showed that total mining production explains the largest amount of shocks within itself. Overall, the study reveals that the mining sector might not have benefited much from the development in the South African financial system.
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  • Date Issued: 2011

Business cycles and stock market performance in South Africa

  • Authors: Muchaonyerwa, Forward
  • Date: 2011
  • Subjects: Stock exchanges -- South Africa , Economic indicators -- South Africa , Business cycles -- South Africa , Economic forecasting -- South Africa , Stocks -- South Africa
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11460 , http://hdl.handle.net/10353/312 , Stock exchanges -- South Africa , Economic indicators -- South Africa , Business cycles -- South Africa , Economic forecasting -- South Africa , Stocks -- South Africa
  • Description: The study investigates the relationship between stock market performance and business cycles in South Africa for the period 2002-2009 using monthly data. This is done by constructing a Vector Error Correction Model (VECM). The study specifies a business cycle model with the business cycle coincident indicator (BC) regressed against, the All Share Price Index (ALSI), Real Effective Exchange Rate (REER), Money Supply (M1), Inflation (CPIX) and the Prime Overdraft Rate (POR). The ALSI represents stock market performance whilst the rest of the variables are to enhance model specification. The study found a positive relationship between stock market performance and business cycles in South Africa. The results also indicated that business cycles are positively related to the lagged variable of the coincident indicator and money supply. In addition, the findings also reveal that BC is negatively related to interest rates and the real effective exchange rate.
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  • Date Issued: 2011

Cointegration, causality and international portfolio diversification : investigating potential benefits to a South African investor

  • Authors: Msimanga, Nkululeko Lwazi
  • Date: 2011
  • Subjects: Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:962 , http://hdl.handle.net/10962/d1002696 , Cointegration , Econometrics , International finance , Stock exchanges -- South Africa , Stock exchanges -- Developing countries , Stock exchanges -- Developed countries , Investments -- South Africa , Portfolio management -- South Africa , Investment analysis , Autoregression (Statistics)
  • Description: Research studies on portfolio diversification have tended to focus on developed markets and paid less attention to emerging markets. Traditionally, correlation analysis has been used to determine potential benefits from diversification but current studies have shifted focus from correlation analysis to exploring cointegration analysis and other forms of tests such as the Vector Error Correction Methodology. The research seeks to find if it is beneficial for a South African investor to diversify their portfolio of emerging market equities over a long-term period. Daily weighted share indices for the period of January 1996 to November 2008 were collected and analysed through the application of the Johansen cointegration technique and Vector Error Correction Methodology. Granger Causality tests were also performed to established whether one variable can be useful in forecasting another variable. The study found that there was at least one statistically significant long-run relationship between the emerging markets. After testing for unit roots for all the share indices and their first difference using the Augmented Dickey-Fuller test (ADF), Philips-Perron and Kwiatkowski, Phillips, Schmidt, and Shin (KPSS) unit root tests, similar conclusions were m~de. All the unit root tests and their levels could not be rejected for all the series. However, unit root tests on the first differences were rejected, meaning that all series are of order 1(1) - evidence of cointegration. Simply put, emerging markets tend not to drift apart over time. This suggests that emerging markets offer limited benefits to investors who are looking to add some risk to their portfolios. In addition, the study also found evidence of both unidirectional and bidirectional causality (Granger-Cause tests) between markets. This implies that the conditions for a particular market are exogenous of the other market. The study concludes that emerging markets are gradually adopting the same profile as developed markets.
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  • Date Issued: 2011

An investigation of the informational efficiency of the Johannesburg Stock Exchange with respect to monetary policy (2000-2009)

  • Authors: Samkange, Edgar
  • Date: 2010
  • Subjects: Holding companies -- South Africa , Stock exchanges -- South Africa , Monetary policy -- South Africa -- History
  • Language: English
  • Type: Thesis , Masters , M Com
  • Identifier: vital:11456 , http://hdl.handle.net/10353/324 , Holding companies -- South Africa , Stock exchanges -- South Africa , Monetary policy -- South Africa -- History
  • Description: 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.
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  • Date Issued: 2010

Day-of-the-week effect : evidence from nine sectors of the South African stock market

  • Authors: Mbululu, Douglas
  • Date: 2010
  • Subjects: Stock exchanges -- South Africa , Johannesburg Stock Exchange , Stocks -- Prices -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1024 , http://hdl.handle.net/10962/d1002759 , Stock exchanges -- South Africa , Johannesburg Stock Exchange , Stocks -- Prices -- South Africa
  • Description: 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
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  • Date Issued: 2010

An empirical analysis of the long-run comovement, dynamic returns linkages and volatility transmission between the world major and the South African stock markets

  • Authors: Chinzara, Zivanemoyo
  • Date: 2008
  • Subjects: Stock exchanges -- South Africa , Globalization -- Economic aspects -- South Africa , International economic relations , Portfolio management -- South Africa , Monetary policy -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:970 , http://hdl.handle.net/10962/d1002704 , Stock exchanges -- South Africa , Globalization -- Economic aspects -- South Africa , International economic relations , Portfolio management -- South Africa , Monetary policy -- South Africa
  • Description: The international linkages of stock markets have important implications for cost of capital and portfolio diversification. Recent trends in globalization, financial liberalization and financial innovation raises questions with regard to whether African stock markets are being integrated into world equity markets. This study examines the extent to which the South African (SA) equity market is integrated into the world equity markets using daily data for the period 1995-2007. The study is divided into three main parts, each looking at the different ways in which integration can be considered. The first investigates whether there is long run comovement between the SA and the major global equity markets. Both bivariate and multivariate Johansen (1988) and Johansen and Juselius (1990) cointegration approaches were utilised. Vector Error Correction Models (VECMs) are then estimated for portfolios which show evidence of cointegration. The second part analyses returns linkages using the Vector Autoregressive (VAR), block exogeneity, impulse response and variance decomposition. The third part examines the behaviour of volatility and volatility linkages among the stock markets. Firstly volatility is analysed using the GARCH, EGARCH and GJR GARCH. Simultaneously, the hypothesis that investors receive a premium for investing in more risky stock markets is explored using the GARCH-in mean. The long term trend of volatility is also examined. Volatility linkages are then analysed using the VAR, block exogeneity, impulse response and variance decomposition. The first part established that no bivariate cointegration exists between the SA and any of the stock markets being studied, implying that pairwise portfolio diversification is potentially worthwhile for SA portfolio managers. However, multivariate cointegration exists for some portfolios, with the US, UK, Germany and SA showing evidence of error correction for some of these portfolios. Findings on return linkages is that there are significant returns linkages among the markets, with the US and SA being the most exogenous and most endogenous respectively. Findings regarding volatility are that the volatility in all the markets is inherently asymmetric and that except for the US there is no risk premium in any of the markets. The long term trend of volatility in all the stock markets was found to be relatively stable. The final finding was that significant volatility linkages exist among the markets, with the US being the most exogenous and SA and China showing evidence of bidirectional linkages. Overall, except for volatility linkages, the integration of SA into the global equity markets is still quite low. Thus, both SA and international investors can capitalise on this portfolio diversification potential. On the other hand, policy makers should capitalise on this and make policies that will attract the much needed foreign investors.
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  • Date Issued: 2008

An analysis of the turn-of-the-year effect in South African equity returns

  • Authors: Potgieter, Damien
  • Date: 2007
  • Subjects: Johannesburg Stock Exchange , FTSE International , Stock exchanges -- South Africa , Stock price indexes -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1063 , http://hdl.handle.net/10962/d1007605 , Johannesburg Stock Exchange , FTSE International , Stock exchanges -- South Africa , Stock price indexes -- South Africa
  • Description: 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.
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  • Date Issued: 2007

An empirical investigation into the determinants of stock market behaviour in South Africa

  • Authors: Olalere, Durodola Oludamola
  • Date: 2007
  • Subjects: Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa , Macroeconomics -- South Africa , Interest rates -- South Africa , Foreign exchange rates -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:998 , http://hdl.handle.net/10962/d1002733 , Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa , Macroeconomics -- South Africa , Interest rates -- South Africa , Foreign exchange rates -- South Africa
  • Description: The argument with regards to whether macro-economic fundamentals determine stock market behaviour is very important because of the roles it plays in an economy. Such roles include: pooling and trading of risks, mobilization of savings, provision of liquidity and allocation of capital. However, the stock market will only perform such roles effectively if the macro-economic environment is conducive. This study examined the behaviour of the All Share Index (ALSI) and market capitalization on the Johannesburg Stock Exchange in response to changes in the domestic and international macro-economic fundamentals such as the consumer price index, rand-dollar real exchange rates, domestic GDP, yield on South African government bonds, yield on United States government bonds and United States GDP. The study used cointegration and error correction techniques proposed by Johansen and Juselius (1990) to test for long run relationship. Two separate models were estimated and results obtained show that the two proxies for the stock market behaviour (All share Index and market capitalization) are true endogenous variables, but react differently to economic fundamentals. The consumer price index has a significant negative impact on the JSE share price index while market capitalization is determined predominantly by the yield on South African government bonds. The exchange rate seems to have had little or no influence on the share price index, but becomes negative and significant in the case of market capitalization. The yield on United States government bonds also produced a strong influence on both the share price index and market capitalization. While it has a negative significant impact on share prices, it produced a positive significant impact on market capitalization. In order to ascertain whether the South African interest rate or the United States interest rate is more important in explaining the share price and market capitalization, each of the variables were estimated in the model separately, the result obtained reveals that the United States interest rate is more important than the domestic interest rate in explaining the share price and market capitalization on the JSE. This implies that investors need to observe the USA interest rate before investing in South African equities. A comparison of the responses of share price index and market capitalization to impulses from the macro-economic variables tested reveals that both proxies elicit a positive response from aggregate output. The share price index responds more significantly to impulses from output growth than the market capitalization, meaning that, as aggregate production increases, the share price index tends to respond positively and quickly. The exchange rate produced mixed result from the two proxies, while it produced a positive response from the market capitalization; an initial positive response was noted in the share price index that immediately turned negative. Another glaring contrast was identified in the response of both proxies to impulses from the United States interest rate. The share price index responded positively while the market capitalization produced a negative response. This finding reveals that the two proxies actually respond differently to macro-economic variables. The variance decomposition of both stock prices and market capitalization reveals that the yield on United States government bonds has a more significant absorption potential than the South African government bonds. However, the absorption process is slower in the case of the market capitalization. The exchange rate has a greater impact on the market capitalization than stock prices. The overall assessment shows that share prices respond faster than market capitalization to macro-economic fundamentals. The study also shows that the increased openness of the South African economy by way of relaxation of the exchange control on capital account transaction has allowed the USA market to play a crucial role in equity prices in South Africa. Three main policy recommendations results from the study. Firstly, if inflation is well monitored, then the local equity market is bound to perform strongly resulting in strong shares earning growth. Secondly, the exchange rate should be made to be less volatile so that long term investment plans across borders can be further enhanced. Thirdly, financial analyst and investors in South Africa need to analyse macro-economic developments in the United States before investing in equities in South Africa.
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  • Date Issued: 2007

Financial instability in South Africa : trends and interactions within the financial markets

  • Authors: Shikwambana, Jamela
  • Date: 2007 , 2013-08-06
  • Subjects: Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1043 , http://hdl.handle.net/10962/d1005911 , Finance -- South Africa , Financial institutions -- South Africa , Economic stabilization -- South Africa , Stock exchanges -- South Africa , Stocks -- Prices -- South Africa , Interest rates -- South Africa , Equilibrium (Economics)
  • Description: This study seeks to investigate the trends and interactions of market volatility as a source of instability in the South African financial markets. Financial instability can be manifested in the form of banking and currency crisis, institutional failures and extreme asset price volatility. This study, however, focuses on a single aspect of financial instability - asset price volatility. Asset price volatility reflects changes in market expectations as investors react to such changes, and thus on its own is not necessarily a source of instability. However, volatility spillovers can propagate volatility shocks across the market, increasing the risk of widespread instability. Using a combination of graphical and trend analysis as well as more formal estimation techniques, the study examined volatility in the stock, money and foreign exchange markets. To obtain estimates of market volatility, the study experimented with various volatility models that include the GARCH, TARCH and EGARCH. An analysis of volatility interactions and the transmission of volatility shocks across the market is crucial to understanding financial instability. To examine volatility interaction and the transmission of volatility shocks, a VAR model was estimated. This framework allowed us to examine the propagation of shocks across the markets. Volatility in the financial markets was found to be highly persistent and in the case of exchange rates, volatility was also characterised by an increasing trend. Significant linkages between the financial markets were found. The links also extended to the volatility relationship as evidenced by significant volatility spillovers across the markets. While volatility spillovers from the money market were found in the stock market and the foreign exchange market, no volatility spillovers from these markets were found in the money market. Thus the money market was identified as the major source of volatility spillovers and shocks in the financial markets. These results highlighted the role of monetary policy in the financial system, specifically the need to make monetary policy stable and predictable to ensure that interest rate shocks are not an additional source of instability. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
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  • Date Issued: 2007

The market efficiency hypothesis and the behaviour of stock returns on the JSE securities exchange

  • Authors: Mabhunu, Mind
  • Date: 2004
  • Subjects: Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa
  • Language: English
  • Type: Thesis , Masters , MCom
  • Identifier: vital:1027 , http://hdl.handle.net/10962/d1002762 , Johannesburg Stock Exchange , Stocks -- Prices -- South Africa , Stock exchanges -- South Africa
  • Description: 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.
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  • Date Issued: 2004
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