Browsing by Subject "Efficient Market Hypothesis"

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    A time-series and cross-sectional momentum strategy: Dual momentum applied from a South African perspective
    (2022) Fuchsloch, Michael; van Rensburg, Paul
    Fama and French (2008, p.1654) referred to momentum as a “premier market anomaly”. The momentum effect has been nearly universally observed across all asset classes globally (Asness, et al., 2013). This research paper further explores momentum and replicates the dual momentum strategy proposed by Antonacci (2014) within a South African context. Dual momentum combines time-series and cross-sectional momentum in pursuit of enhanced risk adjusted returns. The strategy is constructed using tradeable indices in order to minimise transaction costs. This study investigates the dual momentum strategy applied to the JSE Top 40 index. The strategy also includes two indexes which stay constant, the MSCI ACWI index for offshore exposure and the STeFI index which serves as an alternative proxy investment and acts as a safe haven during economic downturn. In addition, this study investigates two variations of the core strategy which include shortening the look-back period and lowering the strategy's threshold. Furthermore, and supplementary to the core strategy, dual momentum is applied to several South African sector indexes. Followed by a second supplementary section where dual momentum is applied to a pool of indexes where only the top performing index is used over a specific period in time. The results of the performance analysis of the dual momentum strategy over the sample period illustrates the strategy's ability to generate superior risk adjusted returns, lower standard deviations, lower maximum drawdowns, and yields significant positive alpha. Thus, the core dual momentum strategy and focal point of this study, validates the strategy within a South African context. However, the results of the variations and both supplementary sections display a vast range in underperformance. This highlights the dual momentum strategy's inability to adequately cope with high volatility. During periods of high volatility, the strategy tends to struggle which is also the case with the core strategy and most other momentum strategies. Therefore, the two variations and supplementary strategies do not manage to improve the core dual momentum strategy.
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    Testing the Long-Term Profitability of the Short-Term Reversal Strategy
    (2019) Tsiu, Matsepe Modikeng Theodore; van Rensburg, Paul
    The purpose of this investigation was to test the theoretical possibility of an investor earning a positive cash return from the activities of the stock market despite effectively holding no position at all in said market. The sample data were the daily returns for the shares of the 780 companies listed on the NASDAQ and the New York Stock Exchange (“NYSE”), which fell within the top 500 listed companies by market capitalisation between 1 January 2005 and 31 December 2017. The reversal strategy’s performance was evaluated using portfolios constructed as quantiles of 100 or 500 shares, respectively, where the investor had the option of implementing the reversal strategy immediately after an information-gathering period closed or a day thereafter. The time intervals used were 1 January 2005 to 29 September 2008 (the day the Dow Jones Industrial Average crashed by 777.68 points), 29 September 2008 to 31 December 2017 and 1 January 2005 to 31 December 2017. Of the 1000 portfolios tested in each time interval, at least 416 had positive average returns in every time interval. Of the portfolios that had positive average returns over the time intervals, at least 66 had statistically significant average returns in every time interval. The best-performing portfolio for the entire sample period was a combination of the best-performing pre-crash and post-crash portfolios - an investor who held that portfolio realised a cumulative return of approximately $61.39 for every $1 invested. The conclusion was that it was theoretically possible for an investor to earn a positive cash return from the market’s activities despite effectively holding no position at all in the market. Consequently, it was concluded that the strong form of Fama’s (1970) Efficient Market Hypothesis was disproved. Future research should include out-of-sample tests, tests that include restrictions on short selling and tests that consider the impact of trading costs on portfolio performance, to render the conclusions of this investigation more practically applicable to investors.