Momentum trading strategy on the Johannesburg Stock Exchange

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dc.contributor.advisorVan Rensburg, Paulen_ZA
dc.contributor.authorEloff, F Nen_ZA
dc.date.accessioned2014-10-17T10:12:45Z
dc.date.available2014-10-17T10:12:45Z
dc.date.issued2014en_ZA
dc.descriptionIncludes bibliographical references.en_ZA
dc.description.abstractThis research report documents an example of evidence of investor overreaction in the marketplace, with overreaction to short-term information found to be exploitable via price corrections in order to generate market-beating returns. An efficient market should render any consistent abnormal returns unattainable. Hence any technical analysis allowing an investor to obtain such returns would indicate a degree of market inefficiency. Three signal generation strategies are employed to test for momentum and price corrections in the market, namely using a stock's price and moving average, ranking stocks based on prior returns, and allocating stocks as overbought and oversold. The strategies are employed on data comprising the top 60 stocks on the JSE as at August 2012. The period tested runs from January 1998 to August 2012. Signal generation by means of price and moving average encompasses trade signals being generated by a stock's price moving above or below a variable moving average. Returns to this strategy tend to be maximized when employing a short-term (20-day) moving average, with an annualised above market return of 14,9 achievable. Using the returns of a stock in an immediately preceding formation period as a ranking criterion to classify stocks into a portfolio is found to be a superior method to generate trading signals. A portfolio of the best performing stocks in a preceding period ("the winner portfolio") is found to be able to outperform the market. Given a minimum formation period of 50 days, price continuation is achieved after holding the portfolio for at least 30 days, with annualized market excess returns greater than 10 achieved at longer formation and holding periods. A portfolio of the worst performing stocks in the same period ("the loser portfolio") is able to outperform the winner portfolio, and is capable of achieving returns of 20 in excess of the market, given a formation period as low as 10 days, while closing the investment position after no more than 10 days.en_ZA
dc.identifier.apacitationEloff, F. N. (2014). <i>Momentum trading strategy on the Johannesburg Stock Exchange</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax. Retrieved from http://hdl.handle.net/11427/8557en_ZA
dc.identifier.chicagocitationEloff, F N. <i>"Momentum trading strategy on the Johannesburg Stock Exchange."</i> Thesis., University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax, 2014. http://hdl.handle.net/11427/8557en_ZA
dc.identifier.citationEloff, F. 2014. Momentum trading strategy on the Johannesburg Stock Exchange. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Eloff, F N AB - This research report documents an example of evidence of investor overreaction in the marketplace, with overreaction to short-term information found to be exploitable via price corrections in order to generate market-beating returns. An efficient market should render any consistent abnormal returns unattainable. Hence any technical analysis allowing an investor to obtain such returns would indicate a degree of market inefficiency. Three signal generation strategies are employed to test for momentum and price corrections in the market, namely using a stock's price and moving average, ranking stocks based on prior returns, and allocating stocks as overbought and oversold. The strategies are employed on data comprising the top 60 stocks on the JSE as at August 2012. The period tested runs from January 1998 to August 2012. Signal generation by means of price and moving average encompasses trade signals being generated by a stock's price moving above or below a variable moving average. Returns to this strategy tend to be maximized when employing a short-term (20-day) moving average, with an annualised above market return of 14,9 achievable. Using the returns of a stock in an immediately preceding formation period as a ranking criterion to classify stocks into a portfolio is found to be a superior method to generate trading signals. A portfolio of the best performing stocks in a preceding period ("the winner portfolio") is found to be able to outperform the market. Given a minimum formation period of 50 days, price continuation is achieved after holding the portfolio for at least 30 days, with annualized market excess returns greater than 10 achieved at longer formation and holding periods. A portfolio of the worst performing stocks in the same period ("the loser portfolio") is able to outperform the winner portfolio, and is capable of achieving returns of 20 in excess of the market, given a formation period as low as 10 days, while closing the investment position after no more than 10 days. DA - 2014 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2014 T1 - Momentum trading strategy on the Johannesburg Stock Exchange TI - Momentum trading strategy on the Johannesburg Stock Exchange UR - http://hdl.handle.net/11427/8557 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/8557
dc.identifier.vancouvercitationEloff FN. Momentum trading strategy on the Johannesburg Stock Exchange. [Thesis]. University of Cape Town ,Faculty of Commerce ,Department of Finance and Tax, 2014 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/8557en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentDepartment of Finance and Taxen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherInvestment Managementen_ZA
dc.titleMomentum trading strategy on the Johannesburg Stock Exchangeen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMComen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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