Firm-specific attributes and the cross-section of JSE securities exchange returns

dc.contributor.advisorVan Rensburg, Paulen_ZA
dc.contributor.authorRobertson, Michael Nen_ZA
dc.date.accessioned2014-10-26T19:33:33Z
dc.date.available2014-10-26T19:33:33Z
dc.date.issued2002en_ZA
dc.descriptionIncludes bibliographical references.en_ZA
dc.description.abstractThe empirical counterpart of a theory of asset prices is a model of the cross-section of security returns. Empirical tests of the Capital Asset Pricing Model (CAPM) of Sharpe (1964), Lintner (1965), Mossin (1966) and Black (1972) using cross-sectional methodologies have identified numerous cases where variables apart from beta explain expected returns. Initially termed 'anomalies', these empirical violations of the theory are frequently associated with firm-specific attribute data. Traditional views of market efficiency however rule out the ability to predict risk-adjusted asset returns and the source and exploitability of these anomalies remains controversial. This thesis empirically investigates the cross-sectional relationship between twenty-four firm-specific attributes and stock returns on the JSE Securities Exchange (JSE). The results are evaluated to determine whether they conform to the predictions of the CAPM and a two factor Arbitrage Pricing Theory (APT) model suggested by prior research. In monthly univariate tests similar to Fama and MacBeth (1973), price-to-NAV, dividend yield, price-to-earnings, cashflow-to-price, price-to-profit and size are found to have statistically significant predictive power in the cross-section of returns using monthly data from July 1990 to June 2000. After conducting risk-adjustments using both the CAPM and a two factor APT model these effects are found to persist. Multivariate testing suggests a two factor model with the size and price-to-earnings attributes as explanatory variables. When the cross-sectional tests are compared across the broad industry sectors of the JSE, value effects are observed as being stronger in the financial-industrial sector than in the resource sector, the small size effect is roughly the same across sectors while the premium earned by higher debt levels is negative across all sectors except the financial sector. The results are not reconcilable with the predictions of the CAPM. Simulated portfolios constructed using a methodology similar to Fama and French (1992) reveal that beta, if anything, is inversely related to average returns on the JSE. Contrary to the international evidence, greater average returns accruing to small and low price-to- earnings firms are not commensurate with higher betas. Controlling for the small size and low price-to-earnings effects does not improve the explanatory power of beta. An application of the Daniel and Titman (1997) methodology suggests that average returns on the JSE are not compensation for factor risk, but instead are associated with the exposure to the attributes themselves. The findings of this study present a serious empirical challenge for covariance-based asset pricing models on the JSE.en_ZA
dc.identifier.apacitationRobertson, M. N. (2002). <i>Firm-specific attributes and the cross-section of JSE securities exchange returns</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,School of Management Studies. Retrieved from http://hdl.handle.net/11427/8785en_ZA
dc.identifier.chicagocitationRobertson, Michael N. <i>"Firm-specific attributes and the cross-section of JSE securities exchange returns."</i> Thesis., University of Cape Town ,Faculty of Commerce ,School of Management Studies, 2002. http://hdl.handle.net/11427/8785en_ZA
dc.identifier.citationRobertson, M. 2002. Firm-specific attributes and the cross-section of JSE securities exchange returns. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Robertson, Michael N AB - The empirical counterpart of a theory of asset prices is a model of the cross-section of security returns. Empirical tests of the Capital Asset Pricing Model (CAPM) of Sharpe (1964), Lintner (1965), Mossin (1966) and Black (1972) using cross-sectional methodologies have identified numerous cases where variables apart from beta explain expected returns. Initially termed 'anomalies', these empirical violations of the theory are frequently associated with firm-specific attribute data. Traditional views of market efficiency however rule out the ability to predict risk-adjusted asset returns and the source and exploitability of these anomalies remains controversial. This thesis empirically investigates the cross-sectional relationship between twenty-four firm-specific attributes and stock returns on the JSE Securities Exchange (JSE). The results are evaluated to determine whether they conform to the predictions of the CAPM and a two factor Arbitrage Pricing Theory (APT) model suggested by prior research. In monthly univariate tests similar to Fama and MacBeth (1973), price-to-NAV, dividend yield, price-to-earnings, cashflow-to-price, price-to-profit and size are found to have statistically significant predictive power in the cross-section of returns using monthly data from July 1990 to June 2000. After conducting risk-adjustments using both the CAPM and a two factor APT model these effects are found to persist. Multivariate testing suggests a two factor model with the size and price-to-earnings attributes as explanatory variables. When the cross-sectional tests are compared across the broad industry sectors of the JSE, value effects are observed as being stronger in the financial-industrial sector than in the resource sector, the small size effect is roughly the same across sectors while the premium earned by higher debt levels is negative across all sectors except the financial sector. The results are not reconcilable with the predictions of the CAPM. Simulated portfolios constructed using a methodology similar to Fama and French (1992) reveal that beta, if anything, is inversely related to average returns on the JSE. Contrary to the international evidence, greater average returns accruing to small and low price-to- earnings firms are not commensurate with higher betas. Controlling for the small size and low price-to-earnings effects does not improve the explanatory power of beta. An application of the Daniel and Titman (1997) methodology suggests that average returns on the JSE are not compensation for factor risk, but instead are associated with the exposure to the attributes themselves. The findings of this study present a serious empirical challenge for covariance-based asset pricing models on the JSE. DA - 2002 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2002 T1 - Firm-specific attributes and the cross-section of JSE securities exchange returns TI - Firm-specific attributes and the cross-section of JSE securities exchange returns UR - http://hdl.handle.net/11427/8785 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/8785
dc.identifier.vancouvercitationRobertson MN. Firm-specific attributes and the cross-section of JSE securities exchange returns. [Thesis]. University of Cape Town ,Faculty of Commerce ,School of Management Studies, 2002 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/8785en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentSchool of Management Studiesen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherManagement Studiesen_ZA
dc.titleFirm-specific attributes and the cross-section of JSE securities exchange returnsen_ZA
dc.typeDoctoral Thesis
dc.type.qualificationlevelDoctoral
dc.type.qualificationnamePhDen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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