Investment Analysts Journal - Volume 2012, Issue 76, 2012
Volumes & issues
Volume 2012, Issue 76, 2012
Author M. WardSource: Investment Analysts Journal 2012, pp 1 –12 (2012)More Less
Fama's (1970) efficient market hypothesis (EMH) and the capital asset pricing model (CAPM), jointly ascribed to Markowitz (1952), Treynor (1961), Sharpe (1964), Lintner (1965) and Mossin (1966), remain the foundation of most finance and investment courses. This is surprising, given the sustained criticism of the model and its assumptions, and is a reflection of the elegance and parsimony of the theory over the empirical evidence.
On the Johannesburg Stock Exchange (JSE), several authors have examined and noted significant inadequacies relating to the single factor CAPM, particularly with regard to the dual nature (resources versus industrial shares) which characterise this bourse. Van Rensburg and Slaney (1997) advocate the use of a two factor arbitrage pricing theory (APT) model, but show that (at least for industrial shares), additional parameters are required (Van Rensburg, 2001).
We revisit this ground using an improved methodology and data set over the period 31 December 1986 to 31 December 2011. We find that portfolios constructed on the basis of ranked beta exhibit a monotonic, inverse relationship to what the CAPM prescribes for most of the time-series. The use of the single beta CAPM is therefore inappropriate.
Measuring the performance of South African equity investment managers using portfolio opportunity distributionsAuthor J.D. Van HeerdenSource: Investment Analysts Journal 2012, pp 13 –23 (2012)More Less
Market indices and peer group comparison are the most commonly used proxies to measure a portfolio manager's relative performance and draw conclusions regarding a manager's skill in managing investment portfolios. However, methods based on both of these proxies have several drawbacks that may lead to incorrect conclusions regarding relative performance and skill. This study addresses the shortcomings of the traditional approaches, and applies an alternative method to eliminate their shortcomings, namely Portfolio Opportunity Distributions (PODs). The method is applied to all South African equity unit trust portfolios classified as either value or growth portfolios. Although data constraints ruled out any statistical testing of this hypothesis, the results nevertheless suggest that the PODs approach may indeed offer a more accurate performance measurement approach.
Dynamic co-movement and correlations in fixed income markets : evidence from selected emerging market bond yieldsSource: Investment Analysts Journal 2012, pp 25 –38 (2012)More Less
This paper extends research concerned with the evaluation of co-movement and correlations in international fixed income markets by examining dynamic linkages in three emerging bond market yields along with the US. The empirical results suggest that daily bond yields for these markets are not linked, which implies significant long-run risk diversification. In addition, dynamic correlations between emerging market bond yields appear to be more sensitive to negative news rather than to positive news, albeit at low magnitudes. Furthermore, accounting for time-variation is mostly beneficial and leads in most cases to an improvement in the risk-reward ratio relative to measures which do not consider time-variation.
Author C. AuretSource: Investment Analysts Journal 2012, pp 39 –50 (2012)More Less
Most asset pricing theories suggest that stock prices are forward looking and reflect market expectations of future earnings. By aggregating across companies, aggregate stock prices may then be used as leading indicators of future real GDP and real industrial production. A Hodrick and Prescott (1981) filter is used to detrend the data which is compiled on an annual and quarterly basis. An autoregressive model is constructed to test whether the cycle of real stock prices can be a useful indicator of the cycle of real economic activity. The results from this study using both quarterly and annual data show that in a South African context, the cycle of real stock prices on the JSE leads the cycle of real economic activity.
Do the investment determinants of new SMEs differ from those of existing SMEs? Empirical evidence using panel dataSource: Investment Analysts Journal 2012, pp 51 –67 (2012)More Less
In this study we investigate whether the investment determinants of new SMEs differ from those of existing SMEs. To do so, we use two samples of Portuguese SMEs: 495 new SMEs and 1350 existing SMEs, and to estimate the results we use the two-step estimation method. The empirical evidence allows us to conclude that cash flow, age, growth opportunities and GNP are of greater importance for stimulating investment in new SMEs than they are in existing SMEs; sales are of greater importance in stimulating investment in existing SMEs than they are in new SMEs; and debt and interest rate are of greater importance in reducing investment in new SMEs than they are in existing SMEs. Also, the persistence of investment over time is greater in new SMEs than it is in existing SMEs. These findings suggest that problems of information asymmetry between SME owners/managers and creditors are particularly important in the context of new SME activity. As guidelines for economic policy, we suggest adding effective support through the creation of beneficial lines of credit designed specifically to support new SME activity.
Source: Investment Analysts Journal 2012, pp 69 –78 (2012)More Less
KOSPI 200 index options are the most actively traded exchange-listed derivative contracts in the world. And, unlike most other active options markets, trading is dominated by individual investors. This study examines the short-term relationship between stock market returns and implied volatility in the Korean financial market using high frequency data on the recently introduced volatility index (VKOSPI) implied by KOSPI 200 options. We find a strong asymmetric and negative return-volatility relationship at both the daily and intraday levels, which cannot be explained by either leverage or volatility feedback hypotheses on the asymmetric volatility phenomenon. Moreover, we also find that the asymmetric relationship is more pronounced for extremely negative stock market returns. We conjecture that behavioral factors better explain the observed asymmetric return-volatility relationship.