n Studies in Economics and Econometrics - The interaction between sectors, styles and JSE returns

Volume 27, Issue 1
  • ISSN : 0379-6205


This study investigates whether style characteristics exhibit different properties across the major JSE industry sectors. Using monthly data on a broad sample of non-thinly traded JSE shares over the period July 1990 to June 2000, it is observed that a large proportion of financial ratios exhibit right skewness that is related to a lower bound of zero on their values. Financial ratios that incorporate levels of debt are markedly higher in the financial sector. It is argued that, as deposit-taking institutions, the market interprets leverage differently for these companies.

Stock returns are regressed cross-sectionally on lagged style characteristics in each month using a dummy variable to indicate sector membership. The results show that, to varying degrees, small size and several interrelated measures of 'value' exhibit a positive relationship with equity returns within all industry sectors. However, the value effects tend to be stronger in the financial and industrial sectors than in the resource sector. In contrast to the other sectors, financial stock returns are positively rewarded for high debt-to-equity ratios. Notwithstanding the above, it is concluded that, a size and price-earnings style-based model of expected returns is broadly representative of the entire JSE Securities Exchange.

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