Browsing by Author "Kruger, Ryan"

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    Open Access
    Analysis of non-synchronous trading effects on the pricing of Exchange Traded Products: an empirical analysis of the effects on ETP price volatility that result when the ETP instrument is listed on an exchange that is in a different time zone to that of the underlying securities basket
    (2015) Valle, Tarryn Sydne; Kruger, Ryan
    Exchange Traded Products (ETPs) have become important members of the investment universe. They are praised by institutional and retail investors alike for their low cost, transparency and efficient pricing mechanisms. ETPs trade much like equity securities but with a unique creation and redemption mechanism which typically aligns quoted prices with the Net Asset Value (NAV) of the underlying securities. This dissertation examines a class of ETPs whose underlying reference basket consists of securities listed on stock exchanges operating in a time zone different to the time zone of the ETP instrument itself, and whose currencies of the underlying securities are different to the currency of the ETP instrument. The ETP instruments reviewed comprise of the iShares MSCI Country Series and are all listed on the New York Stock Exchange (NYSE). The ETPs are classified into three groups depending on the degree of overlap between the exchange operating times on which their underlying securities are traded and the exchange operating times of the NYSE. These groups are non-synchronous for no overlapping hours, partially synchronous for some overlapping hours and synchronous for overlapping hours. By assessing a measure of range-based volatility during 15-minute intra-day intervals throughout the NYSE trading day, an understanding of the volatility profile of these ETPs is determined and analysed. It is found that non-synchronous ETPs do exhibit a higher relative level of volatility when compared to the partially synchronous group. Within the partially synchronous group, evidence of a regime-shift is observed during the period when the market of the underlying securities transitions from open to closed during the NYSE trading session. Another factor observed in the relative volatility profile is the impact of foreign exchange translation. ETPs with underlying securities priced in an emerging market currency show higher relative levels of range-based volatility. However, both emerging market and developed market denominated securities baskets exhibit relatively higher levels of volatility during the opening and closing periods of the US trading day. The results point to the need for caution and understanding of the underlying reference basket when transacting in these ETPs as investors may inadvertently transact at a price which does not reflect the fair-market value of the underlying securities basket due to price distortions as a result of volatility.
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    Are South African directors able to earn abnormal returns by trading in their companies shares?
    (2016) Ismail, Ameera; Kruger, Ryan
    This paper investigates whether South African directors are able to earn abnormal returns by trading in their companies' shares. An event study methodology was used based on the Capital Asset Pricing Model for director's trades during the period 2009 to 20 12. The results suggest sales transactions are associated with a greater market reaction than purchases. A better market indication is received from in directly beneficial trades than directly beneficial, specifically for sales. Upon further analysis, we find significantly higher abnormal returns for larger value trades. For purchases, single director trades provide a stronger market reaction than multiple director trades. In contrast, sales transactions provide a stronger signal when they are from multiple directors than single directors
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    Beta, size and value effects on the JSE Securities Exchange, 1994-2007
    (2010) Strugnell, Dave; Gilbert, Evan; Kruger, Ryan
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    Cluster management synergy valuation: Synthesis and illustration of a discounted cash flow synergy valuation model for cluster management organisations
    (2016) De Kock, Neil; Rajaratnam, Kanshukan; Kruger, Ryan
    The practice of cluster management has become an integral component to the modern cluster business environment. This research develops a framework for the valuation of synergies generated by a cluster management organisation (CMO) to be used as either a method of (ex-post) management evaluation or (ex-ante) for capital budgeting purposes. The theoretical framework is synthesised from clustering and business alliance (predominantly Mergers and Acquisitions (M&A) and Joint Ventures (JV)), literature. The case of the South African Furniture Initiative (SAFI) was used to inform model development and to illustrate practical application of the theoretical synergy valuation model. The case study found that the synergy valuation model faces problems with practical application due to the wide variety of activities commonly associated with CMO goals and objectives. It concludes that even though a synergy framework would provide a useful tool for evaluation and capital budgeting, further research is required to develop a more accurate method of impact estimation.
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    Considering the steps that could be taken by formal financial service providers to ensure increased access, by low-income individuals, to bank accounts, and to extended financial services, products and initiatives.
    (2023) Von, Willingh Ulrich; Kruger, Ryan; Nilsson Warren
    Financial inclusion in the world is improving, as many countries and financial institutions are focusing on including lower-income individuals and households. This research discusses a number of tools, mechanisms and the intricacies related to pertinent conceptual frameworks to support the promotion of financial inclusion at the various stakeholder levels, and many opportunities to promote financial inclusion. One such tool in South Africa; Co-operative banks (CB's), proactively focuses on inclusive innovation opportunities and the inclusion of mixed-income communities. This is done through continuous review in order to continuously align with its initial objectives of social development and lower-income community participation promotion. Capturing women and young individuals, among other marginalised groups, by; creating accounts for them at a young age, via educational literacy initiatives, and supported by various internal capability support measures, and further reinforced by government and financial institutional inclusion policy and framework promotion (including co-operative banking institutions), holds a lot of promise and opens up a world of opportunities to investigate and explore to progress the financial inclusion agenda. Other literature and themes discussed, include definitions of what financial inclusion is, why many individuals remain unbanked, pre-conditions for successful financial inclusion, alternate financial service providers being used by lower-income individuals and households successfully which we can learn from, and a few measurement tools and mechanisms which exist in order for governments and financial institutions to identify, implement, drive, and track progress. Aforementioned is discussed, and the theory, borrowed from, in order to promote sustainable financial inclusion. *The creation of bank accounts for individuals is seen as a facilitator of, as well as a measure of the level of, financial inclusion.
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    Decoupling of Corporate Social Investment in South Africa: Optics over Impact
    (2019) Morkel, Dayne L; Kruger, Ryan; Toerien, Francois
    Examining corporate social investment (CSI) in South Africa through a lens of institutional theory, this study investigates the validity of criticisms found in literature and society of the practice of CSI in the country. Using a two-phase explanatory sequential research design, an initial quantitative study of archival data provides insights into the current state of CSI in South Africa. Regression and principal component analysis are then used to investigate the relationship between CSI levels and indicators for corporate financial performance and social need. A subsequent qualitative study utilising thematic analysis of interview data addresses questions arising from the quantitative analysis. Semi-structured interviews are conducted with leading corporate executives and academics in the field of CSI regarding their perceptions of the efficacy of CSI and the motivations driving corporate funding of CSI, including their concerns regarding CSI and suggestions for improvements. This study reveals profound concerns amongst corporate practitioners and in academia regarding the practice of CSI, including perceptions that the social impact of CSI is low and that the quality of many CSI programmes is poor. The motivations behind the funding of CSI were also seen to be largely inauthentic, with companies driven primarily by regulation or self-interest in their funding of CSI, rather than a sense of moral imperative. Companies appear to embrace CSI in an attempt to adhere to the social expectations and laws of society, thereby gaining legitimacy, stability, and improved long-term survival prospects. The formal structures and rhetoric surrounding CSI have become decoupled from the underlying activities that characterise its practice, however, a result of relative corporate indifference to its social impact. This ceremonial commitment to the practice of CSI has led to an emphasis on the optics rather than the impact of CSI activities. The results of this study suggest that enhanced incentives or disincentives and greater accountability may be required in order to make CSI contributions more impactful, as may improvements to best practices in the field.
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    Evaluating value at risk models: an application to the Johannesburg Stock Exchange
    (2014) Chotee, Deepika; Toerien, Francois; Kruger, Ryan
    The management of market risk is an essential determinant of the stability of a financial institution, and by extension, of the overall financial system. There are various variables which impact on the accuracy of a market risk management system. For various reasons which are discussed in this study, Value at Risk (VaR) is used as a measure of market risk. VaR has certain key features which make it adaptable to several types of scenarios in order to provide a measure of market risk. In order to assess these features of VaR, this study evaluates VaR using a range of techniques. This study analyses the performance of some of the most popular VaR models using the JSE ALSI's total daily returns. The VaR estimates were calculated for each model using varying parameters for confidence level, risk horizon, distributional assumptions and other variables. The study evaluates the relative accuracy of each model analysed, over specific subsets of the data set under consideration, and performs five different backtests to determine the accuracy of each model. The aim of this analysis is to identify the model most suited to predicting VaR in the South African environment. A key feature of this study is that it includes data during and after the financial crisis, and can, therefore, model the respective volatility characteristics of the data during this period. The results of the analysis indicate that the asymmetric GARCH models outperform the other models over both the full sample period and the crisis and post-crisis subperiods, and that the t distribution assumption produces more accurate forecasts. This implies that such models are better suited to capturing the effects of volatility for data with these characteristics.
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    Evidence of return predictability on the Johannesburg Stock Exchange
    (2011) Kruger, Ryan; Toerien, Francois; Macdonald, Iain
    We investigate return predictability on the Johannesburg Stock Exchange (JSE) with a particular emphasis on (a) the incidence and nature of linear and nonlinear serial dependence underlying the return generation process and (b) the consistency of return predictability between a stable and market crisis period.
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    A framework for evaluating the benchmark risk of South African equity portfolios
    (2005) Kruger, Ryan; Van Rensburg, Paul
    The aim of this study is to identify and quantify those primary aspects of risk which impact on the construction of benchmark ind ices as well as active portfolios in the South African market. The appropriateness of tile application of the new FTSE classification structure with regard to the particular structure of the local exchange on 30 June 2002 has been placed in question. An initial cluster analysis of the index returns underlying the new classification demonstrated that there were significant behavioural anomalies amongst the new index structure with many Financial-Industrial indices now grouped closely with Resources stocks. A principal factors analysis of the market sectors indicated that the strong Financial-Industrials and Resources dichotomy was present within the market but also demonstrated that a number of Financial-Industrial indices, most notably Basic Industries and Cyclical Consumer Goods, demonstrated either loadings on both factors or loaded solely on the Resources factor rather than their own Financial-Industrials factor. An investigation on a share level found that in most cases one or two large cap shares were responsible for the behaviour of their sectors as a whole and that each of the shares in question was either dual-listed or had significant exposure to foreign markets.
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    Islamic finance: a low risk, value-adding alternative
    (2019) Ebrahim, Bint Nur; Kruger, Ryan
    In this thesis conventional indices were compared to Shariah compliant indices within the respective regions and asset classes. Within the equity asset class, on the global side, the MSCI World Index was compared to the Dow Jones Islamic Index, within the United States the S&P 500 Index was compared to the S&P Shariah Index and for South Africa the FSTE All Share Index was compared to the FTSE Shariah All Share Index. Within the fixed income asset class, the Barclays Global Aggregate Bond Index and the Merrill Lynch Global Bond Index were compared to the Dow Jones Sukuk Index. In respect of the global and South African equity and the global fixed income, a sample set of Shariah compliant funds were compared to the respective conventional indices. What was found was that overall for the global equity and the United States comparisons, the Dow Jones Islamic Index and the S&P Shariah Index created higher value than the MSCI World Index and the S&P 500 Index respectively and at a much lower level of debt and therefore risk, over the timeframe analysed. Within the South African equity market, the FTSE All Share Index added more value than the FTSE Shariah All Share Index over the time period reviewed, however these are highly concentrated indices, with the FTSE Shariah All Share Index having an over-exposure to commodities. On the fixed income side, the Barclays Global Aggregate Bond Index and the Merrill Lynch Global Bond Index created more value than the Dow Jones Sukuk Index over the years investigated, however the data and time horizon analysed were limited. When looking at the funds, definitive conclusions regarding the relative performance between the conventional index and the Shariah compliant fund proxy could not be drawn, however there were certain funds that outperformed the conventional index during specific time periods.
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    A Markowitz mean-variance analysis of hedge fund investments for multi-asset class portfolio holders in South Africa
    (2015) Naidoo, Lushan; Kruger, Ryan
    This research aims to provide insight into the hedge fund industry in South Africa. The focus is on retirement funds and the use of hedge funds in a multi-asset class portfolio. Diversification is an important tool for portfolio managers who make use of correlation to achieve higher risk-adjusted returns for investors. As such this paper tests whether higher risk-adjusted returns can be achieved in well diversified multi-asset class portfolios if hedge funds are included. To test for the optimal risk-adjusted returns that can be achieved, mean-variance, mean-semi variance and Omega portfolios were created. The results suggest that portfolios that include hedge fund investments outperformed those that exclude it using mean-variance, mean-semi variance and Omega analysis. Furthermore it was found that portfolios that included Pure Hedge Funds outperformed those that included Fund of Hedge Funds. The evidence suggests that hedge fund investments should be included in a well-diversified South African multi-asset class portfolio, with Pure Hedge Funds being preferred to Fund of Hedge Funds.
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    Option pricing and machine learning: a comparison of black-scholes, bachelier, and artificial neural networks
    (2022) Gross, Eden; Kruger, Ryan
    Practitioners and academics alike have applied the Black-Scholes model (or derivatives thereof) when pricing options practically since the introduction of the model in 1973. The recent coronavirus pandemic and the oil futures price crash of April 2020 have caused major markets to briefly switch to the less widely-known Bachelier model to price derivatives, as the model allows for negative strikes on the underlying. This study evaluates the predictive ability and accuracy of both the Bachelier model and the Black-Scholes model when pricing European call options on the Standard & Poor's (S&P) 500 Index using five different volatility estimation methods. Moreover, it then compares the forecasts of the two parametrised models to a deep feed-forward artificial neural network which is also used to price such options. Overall, the artificial neural network is statistically superior in its predictive ability relative to both of the parameterised models, and the Black-Scholes model is statistically superior in its predictive ability to the Bachelier model.
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    Predicting financial distress of JSE-Listed companies using Bayesian networks
    (2016) Cassim, Ziyad; Kruger, Ryan
    This study aims to test the suitability of using Bayesian probabilistic models to predict bankruptcy of JSE-listed companies. A sample of 132 companies is considered with fourteen years of financial statement information and macroeconomic indicators used as predictor variables. Various permutations of Bayesian models are tested relating to different learning algorithms, intervals of discretisation and scoring metrics. In contrast to previous research, we explore a variety of evaluation measures and it is found that predictive accuracy for bankrupt firms does not exceed 70% in any model augmentation. On comparison to other popular models such as the Altman Z-score and the logit model, it is found that Bayesian networks produce marginally better predictive accuracy. Furthermore, a comparison to previous research on the same subject is carried and reasons for significantly different results are considered. Finally, the reasons for low predictive accuracies is considered with issues relating specifically to South Africa being discussed.
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    Predicting the Bull Run: scientific evidence for turning points of markets
    (2013) Davies, Jerome Edward; Gstraunthaler, Thomas; Kruger, Ryan
    This study investigates predictability in financial markets, specifically the South African financial market, proxied by the Johannesburg Stock Exchange (JSE) All Share Index (ALSI). It provides scientific evidence of past research of turning points in markets, focusing on bull markets as evidence suggests that predictability of bull markets leads to superior returns for an asset manager. In addition, this study provides an analysis of macroeconomic variables that can be used for predictability in the South Africa financial market. We found that certain macroeconomic variables do contain an element of predictability with the yield spread and short term interest rates being the best indicators. In addition we found that predicting the Bull Run in its earliest phase provides superior returns to an asset manager.
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    Risk Management in South Africa Before, During, and After the 2008 Global Financial Crisis: An Application to Different Sectors
    (2020) Gross, Eden; Kruger, Ryan
    The risk management functions of most financial institutions occupy themselves with the estimation of the value at risk (VaR) of their portfolios as a measure of market risk. Various methods are available to calculate the VaR measure, and this can be done at various degrees of confidence. This study evaluates and analyses the performance of five popular VaR forecasting methods in the South African context, using the closing values of three of the major indices available on the Johannesburg Stock Exchange (JSE), namely the All Share Index (ALSI), the Financials-Industrials Index (FINDI), and the Resources Index (RESI). These three indices are considered based on the findings of prior studies that indicate that not only does decomposing the ALSI into its constituent (the FINDI and the RESI) indices provide a better measurement of market risk on the JSE, but these sub-indices also have different systematic risk exposures which may necessitate different treatments in measuring their risks appropriately. The periods examined surrounded the 2008 global financial crisis in order to allow an evaluation of the impact of varying levels of volatility on the analysis. Overall, the study concludes that the performance of the VaR models examined is similar when assessing the risk of the ALSI and the RESI returns, while they are very different for the FINDI. This conclusion provides crucial insight into the risk management and investment decisions concerning portfolios which are more heavily invested in the FINDI as opposed to the other two, as this study suggests that a blanket treatment to the South African market is incorrect.
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    South African General Equity Unit Trust Funds:Fund Performance and Characteristics
    (2018) Pardoe, Liam; Kruger, Ryan
    We evaluate performance of general equity unit trust funds in South Africa during the period 2010 to 2017 and identify, if any, characteristics of these unit trust funds that are drivers of this performance. Performance is measured using Jensen’s Alpha with a sample that has not suffered from the full effects of survivorship bias as many other South African research studies have in past years. We used a Weighted Least Squares regression model, after weighting each funds Jensen’s alpha, to determine what characteristics impact the performance of unit trust funds. Our results showed that Beta, Fund Age, Percentage of Top 10 Holdings and Management Fees were all significant in explaining unit trust performance. We found that in the South African general equity unit trust space, funds which take higher risk relative to the market will experience higher levels of performance, younger funds tended to outperform their older counterparts and funds that charge lower management fees will outperform those with higher fees. Funds that on average throughout the period held less Top 10 JSE listed equity stocks tended to outperform those having a larger Top 10 holding exposure. We have thus been able to uncover material performance characteristics that differentiate South African unit trust performance. We have also provided meaningful parameters for investors and investment managers when structuring diversified portfolios, allowing them to improve their ability to provide outperformance consistently over time.
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    Tencent Holdings Limited : an IPO case study
    (2015) De Wet, Dario; Toerien, Francois; Kruger, Ryan
    The purpose of this case study is to empirically investigate the phenomenon of initial public offerings (IPOs) by applying it to Tencent Holdings Limited (Tencent). Tencent is a Chinese internet and telecommunications value-added service provider that launched its IPO on 16 June 2004. Tencent is China’s largest internet firm and Asia’s most valuable brand, boasting a current market capitalization of HK$1.224 trillion (US$157.9 billion). The origins of Tencent’s success story trace back to its IPO decision, an important topic in the field of finance. The aim of this study is to investigate the structure of Tencent’s IPO, its listing decision and determining an intrinsic value of its IPO shares on its listing date. It was found that Tencent’s IPO extensively relates to academic literature surrounding IPO under-pricing and valuing unlisted companies. The results reveal that Tencent left money on the table by underpricing its offer shares and exercised its over-allotment option as a form of price stabilization. It was further found that Tencent’s underpricing was not influenced by competitor IPOs but rather by stringent IPO allotment policies and other signals of firm quality. It was also discovered that there might have been bias in the allocation of Tencent’s shares. An investigation into Tencent’s listing on the Hong Kong Stock Exchange (HKEx) revealed that while its competitors listed on the NASDAQ Stock Market, there was a clear correlation between Tencent’s operations and corporate structure to the HKEx listing and regulatory requirements. The decisive factors included domiciling in the British Virgin Island and Cayman Islands, the cost of listing on the HKEx Main Board versus the NASDAQ National Market as well as the effects of US GAAP and the Sarbanes-Oxley Act of 2002. The study was concluded with the application of a relative valuation and discounted cash flow (DCF) valuation. The relative valuation estimated a price range of HK$14.40-HK$18.72 for Tencent’s IPO shares, while the DCF estimated the intrinsic value of the shares to be HK$18.68. The analysis was comprehensive and in-depth and suggests that Tencent’s IPO shares were five times undervalued and were offered to shareholders at a deep discount.
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    The South African Volatility Index (SAVI) as a tool for market timing on the Johannesburg Stock Exchange (JSE)
    (2018) Govender, Lerissa; Toerien, Francois; Kruger, Ryan
    This study tests the viability of using the South African Volatility Index (SAVI) as a tool to time equity trades on the Johannesburg Stock Exchange (JSE), and uses technical analysis in the application of selected market timing trading strategies. This study therefore has very real practical relevance to investors on the JSE, who wish to take an active approach to investing. Using the JSE Top 40 Index for the period May 2007 to March 2018 as a sample, this investigation firstly considers whether the technical trading rules developed for the CBOE VIX, as used in the United States market, can be applied to the South African market using the SAVI as a market timing tool in order to outperform a passive buy-and-hold strategy. This involved switching the portfolio between the Top 40 equity index and the STeFI money market index, depending on the nature of the timing signals generated by the SAVI-based strategies. Secondly, this study considers the viability of using the SAVI in a market timing rule to take advantage of the documented size (small-capitalisation versus large-capitalisation) and style (value versus growth) anomalies on the JSE. In the first part of this study, it was found that three of the eleven market timing trading strategies outperformed the buy-andhold strategy before the inclusion of transaction costs. When compared to the results found by the researchers in the U.S context, it appears that these strategies are more successful in the U.S context using the VIX, as the majority of the trading strategies yielded positive excess returns over their respective sample periods. Additionally, in the second part of this study, it was found that the returns of the style strategy were not significant enough to deem it a profitable market timing strategy. However, the returns of the size strategy were significant enough to make it a profitable strategy. Transaction costs, applied at different levels, had a significant impact on the results of all strategies, with only one of the market timing strategies, namely the simple moving average strategy, beating the buy-and-hold strategy after transaction costs of up to 0.2% and 0.45% (for sales and purchases respectively) have been taken into account.