OpenUCT :: Browsing by Author "Toerien, Francois"

Browsing by Author "Toerien, Francois"

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Open Access
A machine learning hybrid approach to forecasting equity returns volatility: A South African perspective.
(2024) Tloubatla, Tabataba Simon; Toerien, Francois
For many years, scholars and professionals in the financial markets have been deeply interested in the forecasting of financial market return volatility. There are many methods for predicting the volatility of financial market returns, and various studies have indicated differing degrees of accuracy in this regard. Research on describing the effectiveness of various approaches under various conditions is still ongoing. This field has moved from simple econometric methodologies like Moving Averages (MA), ARCH-type models and stochastic volatility, to more complex models like LSTM (Long-Short-Term-memory) and SVM (Support Vector Machines) (specifically machine learning algorithms). Machine learning in various forms is currently being explored as an alternative for forecasting the volatility of financial market returns. In this study this exploration is continued by considering a hybrid-based methodology to forecast this volatility, specifically in the South African equities market. There are two guiding principles for this study. The first principle is that specific ARCH-type models that achieve a superior fit to the dataset in question (the JSE All Share Index in this study) can be used in combination with machine learning (ML) models to forecast the volatility in financial market returns. The second principle stems from the work of earlier authors who have demonstrated the suitability and use of LSTM as a ML model that is effective in generating hybrid volatility forecasting models in conjunction with other ARCH-type models. The first guidance is based on the view that accuracy in volatility prediction depends on the ability of a model or group of models to capture volatility stylised facts inherent in a time series dataset used. The approach is based on the idea that various econometric and machine learning forecasting models each have their own advantages and disadvantages, and that combining them results in a stronger forecasting approach. The search for ARCH-type models showing a superior data fit for the Johannesburg Stock Exchange All Share Index (JSE ALSI) revealed the following models as suitable: GARCH(G), EGARCH(E) and TGARCH(T). The study then applies the base econometric models to LSTM and produces seven hybrid models, namely G-LSTM, E-LSTM, T-LSTM, GE-LSTM, GT-LSTM, ET-LSTM and GET-LSTM. Additionally, the averaging of GARCH, EGARCH and TGARCH produces a simple average model. As such, in addition to LSTM and the base econometric models, twelve models are used in this study. This research considered daily prices of the JSE ALSI from January 2004 to December 2022, where 80% of the dataset was used for training purposes and 20% was used for testing purposes. Volatility for this dataset was modeled (both training and testing) using the above models. RMSE, MAE and MAPE were used to evaluate the differential ii out-of-sample performance of the different models. In addition, the Wilcoxon signed-rank test was used to evaluate the significance of the forecasts from the different models generated. The conclusion made is that well-tuned hybrid models outperform all standalone models, including the average model. Furthermore, based on the results of this study it can be argued that GET LSTM, GT-LSTM and ET-LSTM are the most effective financial market returns forecasting models considered, at least as it relates to the South African equities market. Furthermore, more complex hybrid models generally dominate the simpler models as well as the traditional ARCH type models considered. Keywords/ Key phrases: Volatility stylised facts, forecasting volatility, conditional volatility, machine learning, hybrid machine learning, loss functions, LSTM, hybrid volatility forecasting models.
Open Access
Access to financial services: towards an understanding of the role and impact of financial exclusion in Sub-Saharan Africa
(2018) Ndlovu, Godfrey; Toerien, Francois
This thesis investigates the nature and extent of financial inclusion in Sub-Saharan Africa (SSA). It sequentially investigates this in three related studies. The first study examines the impact of access to finance on poverty, while the second investigates the extent to which cross-country structural and macroeconomic variations contribute to the observed variations in the levels of financial inclusion. Finally, because both financial inclusion and financial stability have been embraced as key policy initiatives over the past decade, the third study examines the nature of relationship between these two policy goals. The first paper uses household-level data from FinScope Surveys conducted in eight SSA countries between 2014 and 2015 to examine the impact of access to finance on household wealth. The few studies which have looked at this relationship in the past apply a linear estimation and thus inadvertently assume a uniform distribution across all levels of poverty. This study examines the heterogeneous impact of access to finance along the entire wealth distribution line using a Re-centered Influence Function (RIF) regression model. Further, to eliminate potential endogeneity, an instrumental variable quantile approach is implemented. Results from both estimations indicate that the unconditional effect of access to finance on poverty is non-monotonic. For most of the countries, the effect is highest at the median level, and very low at the bottom of the wealth index. This suggests that the extension of formal financial services disproportionately benefits the middle-class more than the very-poor and rich categories. The second paper uses macroeconomic data obtained from various World Bank databases over the period 2004-2014 to examine the extent to which the observed cross-country variations in financial inclusion are mirrored by country-specific structural and macroeconomic characteristics. To conceptualize, the study uses a benchmark model to establish the optimal level of financial inclusion given the country's fundamentals, and thus provide a meaningful cross-country comparison. The key structural and policy factors that determine the extent of the gap between the actual and predicted levels of access to finance are analysed via a fixed-effects model based on selected SSA countries. The results suggest the existence of a gap in access to finance within the region, compared to their potential. The gap is wider in banking systems with high concentration, low proportion of foreign banks and poor economic conditions. The final paper empirically examines the theoretical ambiguity between financial inclusion and stability. Theory provides conflicting views on whether the two are complimentary, or mutually exclusive. This paper examines this dynamic relationship via a system-GMM panel estimation model using a panel of 40 countries from the SSA region over the period 2004-2014, while controlling for both bank-specific and macroeconomic-wide factors. The results indicate that financial inclusion has a positive impact on bank stability, however, high market power within the banking systems and poor institutional framework tends to undermine the impact of financial inclusion on stability. Overall, the results provide evidence that the existing portfolio of formal financial services does not provide sustainable solutions to poverty eradication in terms of meeting the unique needs of the poorer members of the societies. This ultimately widens the gap between the poorest and the middle-class which further complicates the poverty structure. Therefore, there is a need for more investment on improving both the range of existing product offering and the financial capabilities of the poor, in order to improve their participation in financial markets. Demand-side policies should focus on increasing the bankable population by improving both awareness and usage of financial services and products. Supply-side policies should seek to eliminate market frictions by reducing concentration levels, improve competiveness through relaxation of entry restrictions, and opening the market to foreign institutes and non-banking players, and thus improve innovation in both new products offering and service delivery. This work further argues that financial inclusion is not only a developmental or welfare issue, but has positive ramifications on the banking system. Therefore, to be effective financial inclusion policies should adopt a market systems approach to development, which recognizes the importance of support structures and seek to benefit the poor by incentivizing service providers to improve product quality, variety and returns, and thus create value throughout the value chain. An effective approach should also embrace the role of macro-prudential regulatory and supervisory framework, as an indispensable tool, not only in governing the behavior of financial services providers, but because of its efficacy in building consumer confidence- a key element for increased access and usage of financial services.
Open Access
An Investigation Of The R&D Anomaly In The U.S. And Europe: Implications For Mispricing Theory
(2023) Prinsloo, Pierre-Jean; Toerien, Francois
Belonging in the city of Cape Town is a contested and ambivalent terrain. The past spatial injustices of colonial and apartheid rule have left deep scars and practices embedded in the city. Much has been researched and written about the role of women in land and housing struggles in the Cape. However, there is a gap in the understanding of the interior worlds of black women and how they access resources within for navigating and negotiating belonging in their everyday lives. According to de Certeau's belonging refers to an “everyday ritualized use of space, an appropriation and territorialisation” (and) a “process of transformation of a place, which becomes a space of accumulated attachment and sentiments by means of everyday practices” (de Certeau, 1984: p96). Picking up on this notion of belonging, my research aims to recognize, identify and understand meaning and sense making, humour and the emotional lives of women. The thesis focuses on the lives of three women from one family: each representing a different generation (grandmother, daughter, granddaughter). The thesis explores memoryscapes as that intersection between memory, its tangible aspects such as place, objects and architecture, and that of story. Using narrative enquiry and creative methods of analysis as qualitative research method, the research asks how belonging is negotiated by black women in a postcolonial city. The thesis starts by introducing four strands of literature that inform the research: 1) I engaged with urban studies theory, challenging developmental approaches to postcolonial city formation; Rodaway,2002, Middleton, 2017, Lefebvre, 1996, Jeannotte, 2007, ed. Schindel and Colombo, 2014. 2) I argue that what are missing in the theory are the everyday, ordinary, and interior lives of women. I therefore engaged with feminist scholars such as Hartman, 2019, Butler, 2016, Carby, 2019); 3) I introduce how interiority can enrich literature on belonging Hartman, 2019, Carby, 2019; and 4) I introduce why memory work is crucial to this kind of inquiry; (ed) Field, Meyer, Swanson,2007, Said, 2000, Stoler, 2013, Ricouer, 2004, McKittrick, 2007. The thesis then introduces the qualitative approach to the research, paying particular attention to how narrative forms of inquiry Bochner and Riggs, 2014, Rosenwald and Ochberg, 1992 and visual modes of analysis Elliott and Culhane ed, 2017 and Butler-Kisber, 2010 can enrich urban enquiry. The thesis turns to unpacking the findings through a series of three vignettes entitled ‘I am cheeky you know', ‘umnqusho, amagwinya and tea' and ‘these acts of belonging'. The thesis ends with sharing four key aspects which come to light through the research. The first is that a rich interior life provides a resource for not only coping with life in the city in the everyday, but also strengthens resilience, identity and hence the ability to navigate belonging. The second finding was a set of key strategies deployed by the three women in their navigation of belonging. The third finding is that a process of intersecting story, archival and digital images into a series of collages presented a visual language through which to decode belonging and to make visible the invisible worlds which inform affective relationships, choices and decisions about the city. Finally, it is therefore critical for urban studies to engage more deeply and consistently with the ways in which interiority inform navigation and experiences of belonging in postcolonial cities.
Open Access
Analysis of South African venture capital practitioners' views on the motivations, benefits and constraints of international syndication
(2014) Causey, John P; Toerien, Francois
The international syndication of venture capital investments has become an increasingly widespread phenomenon, but there is a lack of research which applies the already limited prior international research in this field1 to South Africa or other African countries. This research aims to begin that discussion, and take the first step in filling that gap of understanding. The main research questions addressed in this study: are local venture capital practitioners ready and willing to syndicate internationally, and what are the constraints to the formation of those transactions? The issues were examined by interviewing high level investment practitioners representing seven of the 21 nongovernmental VC firms belonging to the South African Venture Capital Associated (SAVCA). This data were influenced and shaped by other available sources of primary and secondary data. The results indicate that South African venture capital investors are ready and willing to syndicate internationally, however there are caveats to that broad statement which the ensuing analysis addresses. Additionally, it was found that there are significant and profound constraints to these transactions forming in South Africa. Those constraints are an unsupportive regulatory environment, negative perceptions by the international investor community of South Africa, small domestic deal sizes and the dearth of bankable ventures led by high quality management teams. Options for further research include a study of the attitudes of potential foreign VC professional partners to the option of syndication involving South African VC firms, and a more in depth investigation into the risks and constraints to South Africa-international syndication.
Open Access
Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
(2018) Robertson, Brett Hope; Toerien, Francois
Using August 2010 to February 2018 as the sample period, this study investigates, from the perspective of a South African investor, the portfolio diversification and optimisation abilities and asset allocation effects of including Bitcoin in a portfolio, and compares this with physical gold. In particular the study investigates: ( i) key statistics, returns and correlations between Bitcoin’s returns and those of the components of a standard South African base portfolio and gold bullion; (ii) the risk-return efficiency enhancements and asset allocation effects (weightings) from the inclusion of Bitcoin and gold bullion under different portfolio frameworks1 ; (iii) the cumulative returns of the optimal portfolios over the investment period; and (iv) the efficient frontier shifts from the inclusion of Bitcoin and gold bullion within the context of different portfolio frameworks. Because of Bitcoin’s non-normal return distribution and extremely high returns, a quantitative mean-semivariance based portfolio optimisation approach is followed, using index proxies2 for the traditional six portfolio assets included (SA equity, SA bonds SA listed property, SA cash/money market, international equity and international cash). The study finds that, for a South African portfolio, Bitcoin (i) enhances the risk-return efficiency (measured i.t.o. the Sortino ratio) and shifts the efficient frontier up and outwards under every portfolio framework, and (ii) that it is far superior to physical gold in this regard under all portfolio frameworks, including within the asset weighting constraints imposed by South African legislation (Regulation 28 of the Pension Fund Act). In addition, at weightings of 5% or lower, Bitcoin not only enhances the portfolio’s risk-return profile, but also further reduces the outright risk of the optimal portfolio. In addition, it is found that due to its negative correlation with SA bonds and SA cash, Bitcoin’s inclusion in a portfolio increases the weighting of these assets, and reduces the allocation to SA and global equity. The above results indicate that South African investors with a higher risk tolerance should consider allocating a small part of their portfolio to Bitcoin, and that South African regulatory authorities should make provision for cryptocurrencies when drafting investment legislation (and, in particular, should consider clarifying its status within Regulation 28).
Open Access
Cash Flow as a Predictor of Share Returns: Evidence from the Johannesburg Stock Exchange
(2019) Alexandroi, Sergei; Toerien, Francois
The existence of so-called equity market anomalies suggests that factors outside of the traditional asset-pricing models can model share returns. Despite this, there is limited empirical evidence on cash flow metrics as anomalies, and less so on cash flows as a predictor of share returns. The aim of this study is to provide a new insight into the South African equity market by investigating and comparing the extent of return predictability displayed by cash and accrual measures. This research extends the work of Foerster, Tsagarelis and Wang (2017) and investigates previously untested cash-based measures on an untested sample of shares in an emerging market. Fixed effects panel regression models are applied to a dataset consisting of 85 shares listed on the Johannesburg Stock Exchange over the period 2008 to 2018, using cash and accounting variables to test for predictive ability on six-month ahead total share returns. In contrast to the findings by Foerster, Tsagarelis and Wang (2017), the results suggest that accrual-based measures provide more explanatory power for share return variation than cash flow measures. However, using these variables for purposes of earning consistent excess returns requires further investigation. In addition, the strongest regression model consists of both bottom-line earnings and cash flow variables, suggesting that there is predictive power in a combination of traditional profitability and cash flow figures. The value of using such cash flow information in the fundamental investment process has practical implications on asset pricing, the presence of anomalies in financial markets as well as return prediction. Underlying this research is also an inherent test of the level of market efficiency on the JSE. The resulting significance levels suggest that some variation in future returns can be explained by prior movements in company financial figures, which contributes to the understanding of how South African equity markets process and reflect financial data. The study therefore provides evidence to reject a strong-form level of market efficiency and support the argument for a semi-strong form level of market efficiency on the JSE.
Open Access
CEO pay ratios and company performance : a study of JSE-listed consumer goods and services companies
(2016) Urson, Michael; Toerien, Francois
The disparity in remuneration between company CEOs and other employees is a topical and highly controversial issue globally. Theoretically, there are two explanations for this pay disparity - tournament theory and behavioural theory. Tournament theory says that employees are more motivated to compete with a larger pay gap, while the behavioural theories say that employees feel inadequate and thus demotivated in the presence of a larger pay gap, resulting in poorer performance. In response to growing concerns about the pay gap, new legislation in the USA has required companies to disclose their pay ratios1 in their financial statements, which is also likely to come to South Africa. As a means to explore CEO pay ratios in a South African context, a study of the determinants and performance effects of companies' CEO pay ratios was conducted in the Consumer Goods and Consumer Services subsectors on the JSE. Data was collected on companies for the period 2006 to 2014 and pay ratios were estimated for each company where the data allowed. Due to the complexity of CEO remuneration, three different pay ratios were calculated, which differed in how long-term incentive payments were treated in each case. Using the same method as Shin, Kang, Hyun, & Kim (2015) used in their South Korean study, three different analyses were conducted. Firstly, the factors determining pay ratios were analysed in a regression analysis, which found CEO tenure, companies' future investment opportunities and company size to be key determinants of pay ratios. Secondly, the deviations from companies' expected pay ratios were regressed against subsequent company performance to see whether CEOs being paid the, "wrong," amount relative to employees affects company performance. It was found that deviations from the expected pay ratio negatively affected company performance, and there was no difference in performance between under- and over-paying CEOs relative to employees. Finally, as a means to test whether tournament theory or behavioural theories better explain the CEO pay ratio in South Africa, subsequent company performance was regressed against the three different pay ratios calculated. It was found that there is little evidence of a relationship between subsequent company performance and the pay ratio, except in the case where performance is measured by return on assets, and the pay ratio is measured such that it excludes long-term incentives completely. The relationship in this case was found to be positive, indicating that tournament theory better explained the relationship between pay ratios and company performance. One of the limitations of this study was the limited availability of data, which gives rise to self-selection bias.
Open Access
A comparison of the performance of the FTSE South Africa Islamic Index to the market in South Africa
(2009) Dhai, Riaz; Toerien, Francois
The aim of this study is to identify whether there is a difference in performance between shares meeting the Islamic investing criteria and the market in an emerging market context. The proxy for the Islamic market is the FTSE South Africa Islamic Index. The returns on this index are compared to three proxies for the market using single and multiple regression models: (1) the All Share Index on the JSE in a single factor regression (2) the Resources Index and Financial/Industrial Index in a two factor model (3) a four factor model developed by Carhart (1997) that accounts for size, growth and momentum in the market in addition to the All Share Index.
Open Access
Corporate governance disclosure and information asymmetry: Evidence from South Africa
(2023) Vos, Ashleigh; Toerien, Francois
Investors globally are becoming more interested in companies' governance disclosure, in part to reduce the information asymmetry caused by the principal-agent problem. Although the association between a company's governance disclosure and its level of information asymmetry has been explored in some developed countries, there is a gap in knowledge on this in a developing country context. This study investigates this link for companies listed on the Johannesburg Stock Exchange (JSE). Using Tobin's Q and share price volatility as proxies for information asymmetry; Bloomberg governance disclosure scores as the variable of interest; and board size, board independence, audit committee size, analyst following, systematic risk, free float, the inverse of assets and profitability as control variables, panel data regression methodology is applied to a sample of 103 companies listed on the JSE from 2009 to 2021 in order to explore the relationship between governance disclosure and information asymmetry in South Africa. Random effects panel regression is used for each dependent variable (share price volatility and Tobin's Q) to gain an understanding of the relationship between corporate governance disclosure, the control variables, and the proxies for information asymmetry. The results of each regression showed that there is a negative correlation between governance disclosure and dependent variables (share price volatility and Tobins Q). This was in line with the hypothesis for the dependent variable - share price volatility, however, the Tobin's Q regression produced a negative correlation when the hypothesis stated a positive correlation. The Tobin's Q regression shows mixed results and therefore there is not sufficient evidence to confirm the hypothesis stated. Since both regression results produced negative results, it contributed to existing literature that prioritising good governance practices will allow a firm to gain the support of stakeholders and reduce information asymmetry.
Open Access
A cost benefit analysis of operational risk quantification methods for regulatory capital
(2016) Nyathi, Mandla; Rajaratnam, Kanshukan; Toerien, Francois
Operational risk has attracted a sizeable amount of attention in recent years as a result of massive operational losses that headlined financial markets across the world. The operational risk losses have been on the back of litigation cases and regulatory fines, some of which originated from the 2008 global financial crisis. As a result it is compulsory for financial institutions to reserve capital for the operational risk exposures inherent in their business activities. Local financial institutions are free to use any of the following operational risk capital estimation methods: Advanced Measurement Approach (AMA), the Standardized (TSA) and/ the Basic Indicator Approach (BIA). The BIA and TSA are predetermined by the Reserve Bank, whilst AMA relies on internally generated methodologies. Estimation approaches employed in this study were initially introduced by the BCBS, largely premised on an increasingly sophisticated technique to incentivise banks to continually advance their management and measurement methods while benefiting from a lower capital charge through gradating from the least to the most sophisticated measurement tool. However, in contrast to BCBS's premise, Sundmacher (2007), whilst using a hypothetical example, finds that depending on a financial institution's distribution of its Gross Income, the incentive to move from BIA to TSA is nonexistent or marginal at best. In this thesis I extend Sundmacher (2007)'s work, and I test one instance of AMA regulatory capital (RegCap) against that of TSA in a bid to crystalise the rand benefit that financial institutions stand to attain (if at all) should they move from TSA to AMA. A Loss Distribution Approach (LDA), coupled with a Monte Carlo simulation, were used in modelling AMA. In modelling the loss severities, the Lognormal, Weibull, Burr, Generalized Pareto, Pareto and Gamma distributions were considered, whilst the Poisson distribution was used for modelling operational loss frequency. The Kolmogorov-Smirnov and Akaike information criterion tests were respectively used for assessing the level of distribution fit and for model selection. The robustness and stability of the model were gauged using stress testing and bootstrap. The TSA modelling design involved using predetermined beta values for different business lines specified by the BCBS. The findings show that the Lognormal and Burr distributions best describes the empirical data. Additionally, there is a substantial incentive in terms of the rand benefit of migrating from TSA to AMA in estimating operational risk capital. The initial benefit could be directed towards changes in information technology systems in order to effect the change from TSA to AMA. Notwithstanding that the data set used in this thesis is restricted to just one of the "big four banks" (owing to proprietary restrictions), the methodology is representable (or generalisable) to the other big banks within South Africa. The scope of this study can further be extended to cover Extreme Value Theory, Non-Parametric Empirical Sampling, Markov Chain Monte Carlo, and Bayesian Approaches in estimating operational risk capital.
Open Access
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.
Open Access
Determinants of Capital Structure in the South African Listed Property Sector
(2020) Calvosa, Alessandro; Toerien, Francois
The purpose of this study is to investigate whether empirical evidence support traditional determinants and theories of capital structure in the listed South African property industry, a relatively new adopter of the globally recognised and regulated Real Estate Investment Trust (REIT) structure. There currently exists little academic literature focusing on this specific topic in the South African property sector. Furthermore, the recent change of the prevalent legal form of South African listed property companies, affords a unique opportunity to investigate the possible impact of regulatory changes on capital structure within this context. A panel regression is applied to a sample of 39 firms over the period 2005 to 2019, which includes all property companies with South African exposure listed on the JSE, both during the pre-REIT and REIT regimes. This results in an unbalanced panel of 314 company years. The regime change to the REIT structure appears to have, on average, increased the use of leverage in South Africa's listed property sector. Debt usage, however, remains well below the allowed regulatory limit and lower than worldwide counterparts. The regression results offer support for the trade-off theory, pecking order theory and market timing theory in the South African listed property context, and are generally in agreement with international findings. Thus, size is found to be positively correlated to debt levels, in line with trade-off theory prediction. Growth opportunities tend to increase leverage ratios, which is consistent with the pecking order theory. Evidence for market timing behavior is the positive correlation found between 12-month share price movements and leverage. Other firm specific determinants including share volatility and interest cover ratio also offered pecking order theory support. Inflation was also found to have a significant effect on leverage in the sector. In conclusion, it is found that the evidence supports elements of most capital structure theories in the South African listed property sector.
Open Access
Do Public-to-Private Leveraged Buyouts Result in Improved Operating Performance? Evidence from the United Kingdom
(2019) Asci, Ceylan Cemre; Toerien, Francois
This study investigates the changes in the operating performance of public-to-private leveraged buyouts (LBOs) backed by one or more private equity firms. For this purpose, this dissertation focuses on a sample of 65 completed public-to-private LBOs in the United Kingdom, which were finalised between 2003 and 2015, and exited by 2018. Specifically, the changes in operating performance in terms of EBITDA/sales, EBIT/sales and EBITDA/total assets, as measured directly and relative to the industry median, before the LBO and at exit by the equity provider, is analysed. A regression methodology from the literature is used to determine the impact of various transaction and company-specific attributes on operating performance changes, based on the shareholder-related agency costs and free cash flow/benefits of debt theories. Surprisingly, the overall picture indicates a negative operating performance change of going-private LBOs in the post-buyout period. The main factors explaining the changes in operating performance seem to be changes in leverage. On the other hand, the hypotheses relating to improved management incentives and improved shareholder monitoring are not supported by the results, as these factors seem to have little to no effect on the operating performance changes related to the public-to-private LBOs in the sample.
Open Access
The effect of South African dividend and capital gains taxes on cost of capital, firm value and capital structure
(2010) Marcus, Matthew; Toerien, Francois
I examine the effect of South African taxes, specifically the secondary tax on companies (STC) and capital gains tax (CGT) on investor measures of expected return and firm value, firm cost of capital and optimal capital structure. The discussion, findings and models presented in this study are entirely original in the field of South African corporate finance research. I model the relationship between STC, CGT and expected return and use this relationship to formulate an hypothesis of the expected behaviour of ex ante measures of implied cost of capital for a sample of listed South African companies.
Open Access
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.
Open Access
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.
Open Access
Examining the introduction and expiration price effect of warrants on their underlying assets: evidence from the Johannesburg Stock Exchange
(2014) Gumede, Lungelo Linda; Toerien, Francois
The aim of this paper is to examine the price effect exerted by derivative warrants on their underlying shares around the introduction and expiration days of the warrants. The study is based on the JSE for the period 2008-2012 and employs the event study methodology. The study assesses the effects generally and for puts and calls separately. Overall, it is found that the price effect depends on the type of warrant as well as the warrant's "moneyness". The in the money sample of puts and calls show significant price effects around the listing and expiration days respectively. The out the money sample of puts and calls indicate no price effect. Each of the samples is subjected to further volume analysis in order to assert if the price effects are linked to any changes in trading volume. This paper has implications for the regulation community and warrant investors on the JSE.
Open Access
Exploring the relationships between Corporate Social Performance (CSP) and institutional shareholding for JSE-listed companies
(2017) Maliwa, Bonga; Toerien, Francois
Globally institutional investors are taking an increased interest in companies' environmental, social and governance (ESG) disclosure and their corporate social responsibility (CSR) performance. Although the relationship between a company's Corporate Social Performance (CSP) and its institutional shareholding has been studied in a number of developed economies, this study fills a gap in the literature by investigating this link for JSE listed companies. Using Bloomberg's ESG and individual environmental, social, and governance disclosure scores as proxies for CSP, panel data regression methodologies are applied to a sample of 98 companies (254 company years) listed on the Johannesburg Stock Exchange from 2013 to 2016 to investigate the link between the different forms of CSP and institutional shareholding in South Africa. The study fails to establish a relationship between institutional shareholding and environmental and social based CSP, but finds a statistically significant positive relationship for governance based CSP. The results imply that, of the three CSP components, South African institutional shareholders in the studied sample mainly consider the governance component in their investment decisions, possibly because good corporate governance is associated with improved financial performance and the adoption of sustainability policies by the company.
Open Access
Foreign portfolio equity flows in selected Sub-Saharan Africa Countries: the underlying process, impact on stock market capitalisation, and policy options
(2021) Mbao, Francis Ziwele; Toerien, Francois; Musongole, Maxwell Chibelushi
The volatility of capital flows and their adverse impact on macroeconomic and financial variables is a major concern to policy makers, resulting in a debate on whether capital controls or financial (capital account) liberalisation is best suited to managing them. This study argues that a better understanding of the underlying process of the foreign capital flows, that is, whether they are a random walk, a persistent, or an anti-persistent series, is a critical but currently lacking element in informing this debate. Specifically for foreign portfolio equity flows, there may also be need to understand their dynamic impact on stock markets. The purpose of this study is therefore to determine the underlying process of foreign portfolio equity flows in the sub-Saharan Africa countries for which a sufficiently long data series is available (i.e., Kenya, Nigeria, South Africa, and Zambia); to establish the impact of these flows on the capitalisation of their stock markets; and draw conclusions on optimal policy choices based on this. Secondary monthly data, covering the period January 1994 to March 2019, is used, but with different sample periods for each country within that range. Structural break estimations are further undertaken to obtain more specific results. Fractal analysis is employed to estimate the Hurst parameter, a measure of the underlying process. This is aided by fractal signal classification, adopted from electronic and communication engineering and physiology, a novel approach in the analysis of capital flows, to avoid misinterpreting the estimated Hurst parameter. The correlation measure technique, another novelty in the analysis of foreign capital flows, is also used to further understand the underlying process of the flows. Bayesian techniques based on sign restrictions are employed in estimating the Calderon-Rossell model, a unique approach, to establish the impact of these flows on stock market capitalisation. The robustness of the results is tested with the Fry and Pagan Median target method. The results indicate that the underlying process of gross foreign portfolio equity inflows and outflows in the four sub-Saharan Africa countries are anti-persistent. Further, increases in market capitalisations owing to positive shocks to foreign portfolio equity inflows are greater than declines resulting from shocks to outflows. The policy implication of these results for the four SSA countries is that capital controls on foreign portfolio equity flows are redundant.
Open Access
The impact of firm size and industry on director dealing profitability: evidence from the Johannesburg Stock Exchange
(2016) Gallagher, Delano; Toerien, Francois
The purpose of this study is to investigate whether abnormal returns are earned on insider trading on the Johannesburg Stock Exchange (JSE). The study first tests the strong form of the Efficient Market Hypothesis by investigating whether abnormal returns are earned by directors purchasing or selling their own firms' shares, and thereafter the semi-strong form of the Efficient Market Hypothesis by investigating the occurrence of abnormal returns earned by outsiders mimicking these director transactions once they are publically announced (which has to be within 48 hours). In addition, this study tests whether these abnormal returns are dependent on firm size, and secondly whether a firm's industry classification, as defined by the JSE, has an effect on the magnitude of abnormal returns earned by directors and outsiders mimicking these transactions. Event study methodology, in conjunction with the Market Model, is used to calculate the abnormal returns for a sample of 1,026 directors' trades made on the JSE between 2007 and 2012. The results indicate that directors in many of the subsamples tested earn statistically significant abnormal returns in the short term (defined as 20 days post the event date), when purchasing or selling shares in their own companies, although more so on sale trades. There is strong evidence of directors being able to time the market, and that outsiders can mimic directors' trades once these become public knowledge to also earn abnormal profits. These findings are inconsistent with both the strong and semi-strong forms of market efficiency. The study further finds a negative correlation between abnormal returns earned and firm size for both director share purchases and sales. This supports the theory that insiders in smaller companies, which are less exposed to market scrutiny than larger firms, possess greater private information than their counterparts in larger listed businesses. Finally, it is found that the highest insider abnormal returns were earned by director purchases in the Basic Materials and Oil & Gas sector, with the lowest abnormal returns earned in the Consumer Goods and Technology and Telecommunications sectors. The findings of this study have both theoretical implications in terms of the market efficiency of the JSE, as well as practical insights for investors looking for a profitable trading strategy based on director trades.

Browsing by Author "Toerien, Francois"

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