Browsing by Author "High, Hugh"

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    A study of the relative performance of South African unit trust fund managers utilizing the portfolio change measure technique
    (1995) Garvin, Trevor; High, Hugh
    Unit trust funds are one of the fastest growing areas of the financial sector in South Africa today. There are currently over 1 million unit trust fund investors, with their associated management companies controlling over R20 billion in funds. The growing importance of the unit trust fund industry means that, increasingly, both investors in these funds, and those who judge the performance of fund managers, have heightened incentives to ensure portfolio performance is accurately measured. More specifically, there is a growing need · to measure the performance of the individual fund managers themselves, thus enabling the directors of the fund management companies to suitably reward successful portfolio managers, whilst penalizing those who are less successful. A great deal of research has been done on this topic both in South Africa and worldwide; however most of the studies have made use of Betas and 'benchmark' portfolios, both of which have many inherent flaws. This thesis examines the performance of unit trust fund managers using a 'benchmarlt free measurement technique, thus enabling one to avoid the measurement problems previously encountered. Chapter I gives a brief outline on the South African unit trust fund industry. In Chapter 2 the author looks specifically at the controversies which underlie the measurement of risk, and those surrounding risk-adjusted performance measurement. The flaws in previous studies are noted. Chapter 3 traces the development of the Performance Change methodology which is the method used in this dissertation. Chapter 4 describes the Performance Change methodology as applied to South African data; with the results from the tests presented in Chapter 5. Final conclusions and proposals for future research are put forward in the concluding Chapter 6. The author has shown conclusively that when utilizing the Portfolio Change Measure, unit trust managers in general are not able to consistently outperform the market. The author's findings suggest that trust fund managers do not achieve any significant level of additional return for the particular funds under their control. The Portfolio Change Measure has two further particularly important uses: (1) it can act as an additional management tool to aid the directors of unit trust fund management companies in measuring how efficiently portfolio managers are managing their funds; ·and, (2) it enables investors to make a more 'informed' investment decision because the comparative performance of unit trust funds is better analysed.
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    An application of an option pricing model to evaluate the cost of a government loan guarantee : an hypothetical case based on Eskom
    (1995) M'pasi, Abrahams Mutedi; High, Hugh
    In the late 1930s, the Great Depression and its consequences led to the U.S federal government's intervention in credit assistance and insurance programmes. The main reason for this intervention was that there was a general desire to rescue individuals and businesses which were unable to repay their debts when due. Considerable debate has focused on the determination of the magnitude of the government liabilities resulting from guaranteed loan re-payments. Today, most nations, including South Africa, employ such government guarantees, but they are often improperly valued; that is, one has no idea whether such guarantees are 'good ' or 'bad' policy tools. This paper illustrates how Put option pricing models may be used to estimate the 'real' cost to the South African government of a loan guarantee to Eskom, which is investing a large hydroelectric project in Mozambique, hypothetically assuming that Eskom has been privatized. While the paper recognises the importance of the insurance premium which could be charged by the government for its loan guarantee, the results under the hypothetical case show that the Eskom is able to readily repay the promised payment and, thus, the loan guarantee provides value to Eskom's owners. In this regard, one can argue that parties involved in such a project, such as the South African government, Eskom and the European agencies may benefit from the loan guarantee programme. Thus, a loan guarantee programme may be seen as a 'good' policy tool to resolve conflicts between lenders and borrowers, to encourage investment and to meet a broader public interest.
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    The real cost of the Government Mortgage Indemnity Scheme : an application of the option pricing theory
    (1995) Seslija, Ljubisa; High, Hugh
    The legacy of apartheid in the social and economic fabric of South Africa is pervasive. More than two million households, with an average of five persons per household, are living in shacks or in hostels. Thus, the South African Government of National Unity as its most urgent priority has endeavoured to find solutions to this disastrous housing crisis. Thus, the Government proposed - amongst other measures - to establish a Government-supported Mortgage Indemnity Scheme. However, such loan-guarantees are not cost free. Moreover, since they are contingent liabilities, the contingency of which may be realised and thus impose a cost to the Government, it is important that such cost be known or estimated. Using the modified Merton's model of an analytic derivation of the cost of loan guarantees, this paper evaluates the potential cost that may be imposed to the Government. While the paper recognised that there may be scope for some kind of the Government loan guarantees, the overriding theme is that the Government should charge a fee for its loan guarantee. Moreover, it has also been illustrated that the main beneficiaries of the MIS will be: (a) households at the upper end of the low-cost housing market, and (b) private financial institutions which will be indemnified by the terms of MIS. Accordingly, the mere fact that the main beneficiaries will be those two categories of end-users and not these at the lower segment of the low-cost housing market suggests that the MIS may not attain its principal purpose - that of serving these in the lowest income group. Thus, there is no reason why the Government should bear the likely cost of the MIS. In contrast, the Government should charge a fee for its guarantee.
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    Short run irrigation water demand : an empirical evaluation of the role of price, crop and technology choice
    (1995) Oricho, George Odero; High, Hugh
    Considerable interest has arisen regarding irrigation water use in, especially, arid areas where competition for this scarce but crucial commodity is likely to intensify. The immediate implication is that user sectors, of which irrigated agriculture is the largest, must ensure efficient and conservative use of scarce water resources, using it sparingly and in high value I return economic activities. Central to the desire for efficient use, in a free market, is the role that proper pricing of water (so that its scarcity value is accurately reflected) could play in limiting farmers' derived short-run irrigation water demand, crop choices, and their choice of technology for irrigation. Using a multi- product firm framework, we have here constructed and modelled four central farm decision functions: the short-run demand function for irrigation water demand; the farmer's crop choice decision; the choice of irrigation technology; and lastly, a crop output equation. We conclude that irrigation water price does not influence short-run irrigation water demand, neither does it affect the farmer's choice of crops or technology. Our fourth equation, the crop output equation, however, demonstrates the important role water plays in irrigation agriculture. Using farm budget data from Orange Free State and Transvaal, which are collected by the Directorate of Agricultural Economics for short - term planning purposes, we conclude that the apparent inefficacy of water costs as a tool for ensuring the efficient and conservative utilisation of irrigation water is due to the relatively negligible weight water inputs have relative to the farmers' capital and operating costs. Water prices alone cannot , therefore, be relied upon as an effective tool for efficient water utilisation in irrigated agriculture in the study area.