Investment Analysts Journal - Volume 2008, Issue 67, 2008
Volumes & issues
Volume 2008, Issue 67, 2008
Source: Investment Analysts Journal 2008, pp 5 –17 (2008)More Less
Benchmarks form an integral part of fund management, both for active managers who seek an appropriate index against which to evaluate their performance, as well as passive fund managers who seek an index to track. The question of what constitutes a suitable benchmark, however, is a practical problem that has perplexed both fund managers and clients alike. The aim of this study is to investigate this problem in the context of the Johannesburg Stock Exchange (JSE), which is characterised by high levels of concentration both in terms of market capitalisation and liquidity and further complicated by a large and relatively volatile resources sector.
Source: Investment Analysts Journal 2008, pp 19 –28 (2008)More Less
Economics, as a school of thought, is chiefly concerned with the optimal allocation of scarce resources in an attempt to maximise (or minimise) some function. In the large sub-school of financial economics, the scarce resource is capital, the goal is to maximise the asset base and the optimal allocation happens chiefly through the financial markets. The correct discriminator for the allocation of capital, given the maximisation function, is the rate of growth (or return) it offers. However, as the allocations inevitably occur in an environment pervaded with uncertainty, an adjustment must be made for the risks associated with every return. The resultant risk-return relationship is at the heart of financial theory and practice, with higher, more certain returns always being preferred to lower, less certain returns. Financial economics then, as a sub-school of economics, reduces to the study of the risks and returns of the competing uses of capital.
Source: Investment Analysts Journal 2008, pp 29 –36 (2008)More Less
Employee (or executive) stock options (ESOs) have generated considerable debate (and not an insignificant volume of research) amongst accountants and finance professionals in recent years. This debate has been fuelled by the growing use of stock options as a component of remuneration and by the institution of international accounting practices that require the expensing of these options in the income statement. The debate has been further compounded by an increasing involvement from financial mathematicians with regard to their pricing. Thus far, no group has managed to reach any consensus regarding the valuation of these stock options, or how they should be reflected in the accounting records. In this paper we integrate the accounting and pricing discussions and provide a model which links the valuation of the stock options with their accounting treatment.
Author J.H. VenterSource: Investment Analysts Journal 2008, pp 37 –47 (2008)More Less
Trading in the warrant, CFD ("contract for difference"), SSF ("single stock future") and other derivative markets is popular because it provides the trader gearing to stock price movements, thus enabling trades with potentially larger returns both when prices increase and when they decrease. However, such trading is also more risky implying that the trader can lose money faster with this form of trading than with conventional trading if price movements are not anticipated correctly often enough. A trader's skill can be measured by the probability that the trader anticipates the price movements correctly. A highly skilled trader will enter enough profitable trades to make up for the occasional losses while a low skilled trader will lose more than can be made up for by the occasional profits. What are high and low skill levels in this context and how do they depend on trading costs and market features such as trends and volatilities? This paper reports the results of studies on these issues specifically for the case of CFD day trading in the large cap stocks of the JSE.
Source: Investment Analysts Journal 2008, pp 49 –56 (2008)More Less
New varieties of equity derivative products have increased in popularity and market share over the past few years. One of the main motivations for writing this paper has been the lack of academic papers on the topic.
The products we want to investigate go under different names such as Enhanced Dividend Securities (EDS), HotEDS, Share Instalments, Darts and Property Plus, and are all of a specific type of exotic call option. The EDS, HotEDS and Property Plus instruments are issued by Investec; instalment shares are offered by ABSA, Nedbank, Standard Bank and Deutsche Bank; and all are traded on the JSE (full details are given in the web pages of the organizations: see the reference list).