Since the work by Fama (1965, 1970), the efficient market hypothesis (EMH) has become a central part of finance theory. The vast body of research done around this concept is evidence of the interest that the EMH has drawn in both the investment and academic circles. However, the bulk of this evidence is from developed markets in the United States and Europe (Groenewold and Ariff, 1998; Mobarek and Keasey, 2000). Little is known about the efficiency of emerging markets, especially those in Africa. The studies available on African stock markets mostly made use of indices data. This is more so in studies that have included more than one market (e.g., Appiah-Kusi and Menyah, 2003).
It has long been the dream of many an investor to be able to profit off the back of historical share prices using rules or technical analysis. This dream of a 'free lunch' has often been challenged by claims that the stock markets are efficient and consequently share prices fully reflect all the currently available information in the market. However, the presence of mean reversion of share returns on the JSE as shown by Cubbins, Eidne, Firer and Gilbert (2006) suggests that markets are not entirely efficient and that there are opportunities to earn abnormal returns.
Mining is a highly capital intensive endeavour and access to equity capital a key requirement for the development of a mine. New mining issues are difficult to value since unseasoned companies often have no past earnings history on which to base predictions of future earnings. Some equity markets have developed large mining boards, and investors seeking the promise of the high returns risky mining investments often focus their attention on these markets.
Large scale surveys of UK (CBI, Deloitte and Touche, 1996) and US (Daily and Dalton, 1994) companies a decade ago suggested that the majority of respondents felt that the heightened focus on corporate governance had no positive impact on corporate performance. The general feeling emerged that sound financial performance excuses poor governance (Pic, 1997).
Four decades after the introduction of the capital asset pricing model (CAPM), and close to three decades after that of the arbitrage pricing theory (APT) model, both models continue to attract the attention of academics, quantitatively inclined financial analysts, financial engineers and investors.
The assumption of normal returns remains ubiquitous in much of modern finance. In the pricing of conditional liabilities, for example, we frequently assume that logarithmic returns are normally distributed. Many risk management metrics, such as Value at Risk (VaR), and performance metrics such as Sharpe ratios also assume normally distributed movements.