Extracted from text ... Number 46 - Part 5
P van Rensburg
Investment Basics: XXXIV
The arbitrage pricing theory
The APT was developed by Stephen Ross in the early 70s and first published in 'The Arbitrage Theory of Capital Asset Pricing' (1976). The
APT is based on fewer and less restrictive assumptions than the more familiar capital asset pricing model (CAPM) of Sharpe (1964), Lintner
(1965) and Mossin (1966). It is also a more general model than the CAPM allowing for more than one risk factor to underlie stock returns.
However, the primary challenge in applying the APT is discerning the identity of ..
Extracted from text ... Number 46- Part 4
MA Neu-Ner and C Firer
The benefits of diversification on the JSE
A fundamental cornerstone of investment theory is the principle of diversification.
Risks inherent in an investment are often described as being made up of those risks which are common to all assets, and thus cannot be
diversified (systematic or market risk) and those which are unique to the asset, and can thus be eliminated by diversification (firm-specific
or non-diversifiable risk).
As portfolio size increases, so the risk of the portfolio falls due to elimination of firm-specific risk. Of importance to investors is the ..
Extracted from text ... Number 46 - Part 3
W. Bethlehem, BCom (Witwatersrand)
Price adjustments on the JSE for announcements of share (stock) dividends
Unlike most cash dividend and capital structure changes, share dividends do not directly affect the future cash flows of the firm.
Traditionally, share dividend declarations have been viewed by many academics and financial managers as costly transactions which
merely increase the number of claims on the assets and earnings of the firm and therefore are worthless to shareholders. However, in
markets where managers have information about current and future earnings which is unavailable to investors, share dividends may
Extracted from text ... Number 46 - Part 2
J Henn and EvdM Smit
The influence of economic news events on share market activity in South Africa
Owing to the inherent competitiveness of capitalism, share market participants will undoubtedly continue striving to outperform the market
by their understanding of the movement and potential movement in share prices. Given the fad that company profit and company share
prices are a direct result of the level of economic activity, one would expect that information on economic trends, policies and issues may
provide clues to share market behaviour. That this is a popularly held view is ..
Extracted from text ... Number 46 - Part 1
JH Burger and EvdM Smit
The relationship between share price volatility on the JSE and mispricing and open interest on SAFEX
Internationally, share index futures have become a popular means of achieving short-run adjustments in asset allocations for pension
funds and other institutional investors. Differences between shares and futures influence their relative prices and the degree to which they
are employed in reallocating positions. Should the underlying volatility in the share market change, risk-averse investors respond by
adjusting their portfolios, affecting the relative prices of shares and index futures. Volatility has historically been a ..