E vd M Smit

Responsible investing in South Africa

ABSTRACT Given growing interest in the phenomenon of Responsible Investing (RI), both locally and internationally, the purpose of this paper is to provide an overview of the RI sector in South Africa. It focuses on the definition and characteristics of RI within the South African context; the size and nature of the local RI sector and the obstacles which impede on the growth of the local RI sector. Recommendations are made on overcoming these barriers. It is suggested that local institutional investors drive the rebranding of RI in South Africa and that more RI products be developed to cater for the diverse needs of RI investors, both locally and internationally.

Futures-Trading Activity and Share Price Volatility in South Africa

ABSTRACTThe study examines the relationship between futures-trading activity and equity volatility on the JSE for the three main indices. Contrary to findings in other markets, it is shown that positive correlation exists between equity volatility and expected and unexpected trading volumes in both the spot and futures markets. These conclusions seem robust to alternative specifications and indices used. Given an assumption of causality which runs from futures trading volumes to spot market volatility, the results are consistent with the idea that increasing trade in the futures market lead to greater volatility and price destabilisation in the share market.

Minimum variance hedge ratio analysis for the South African share index futures market: Duration and expiration effects

ABSTRACTThe minimum variance hedge ratio (HR*) and the classic or beta hedge ratio are commonly used decision rules in drawing up a hedging strategy. Research regarding the superiority between HR* and the beta hedge ratio that had been done on the US market has yielded mixed results.This study investigates the stability of HR* for the Johannesburg Stock Exchange All Share, All Gold and Industrial Indices futures contracts with respect to hedge duration and time to contract expiration. Hedge durations of one, two and four weeks are compared, and these are further subdivided into the number of weeks remaining until contract expiration. The HR* values are analysed for predictable trends, and statistical comparisons are made with the beta hedge ratio.The results show that the minimum variance hedge ratios are significantly less than the beta hedge ratio of 1, and that they increase as hedge duration increases from one to four weeks. The results also show that, in general, the HR* values increase, although onl...

Aandeleopbrengste en Reële Ekonomiese Aktiwiteit—Die Suid-Afrikaanse Ondervinding

ABSTRACTThis article investigates the relationships between real economic activity and share returns. A turning point analysis shows that returns consistently lead the business cycle, although with leads that substantially vary between turning points. Upswings appear to be easier to forecast than downswings, using share value indices. Causality tests show very little evidence of causality between returns and production growth. Also on the level of seasonal patterns in production growth and share returns, there is little evidence that the stock exchange leads real activity.

Die Suid-Afrikaanse Kapitaalmark en Aandelebeurs as Vooruitskatters van Reële Ekonomiese Aktiwiteit

ABSTRACTTwo simple forecasting models are developed to forecast future real economic activity, the one based on information contained in the industrial share index and the other based on the term structure of interest rates. It is shown that both these models provide better ex ante forecasts of real activity than a number of leading South African economic forecasters.

Hedging a share portfolio with futures contracts: A linear goal programming approach

ABSTRACTAn investor wishing to hedge his share portfolio with futures contracts wants to ensure that the losses he incurs with his share portfolio during adverse market conditions are adequately covered by the profits he makes with the futures contracts he sells while wishing to minimise the costs involved with his participation in the futures market. These costs consist of transaction costs, cash outflows for margin deposits, and the opportunity cost of the margins deposited at the broker.The traditional hedging methods do not take the above mentioned costs into consideration. A linear goal programming model for South African conditions is developed which optimises the conflicting needs of the investor by updating his position on a weekly basis.

The Impact of the Efficiency of the South African Share Index Futures Market on Hedging Effectiveness and Optimal Exposure Management over the Period 1987 to 1989

ABSTRACTAn empirical investigation was undertaken to assess the impact of futures market efficiency on hedging effectiveness and optimal exposure management in the South African SIF market for the period June 1987 to December 1989. It was found that hedge performance in the market has remained on the same levels over the period. Results further suggest that optimal (risk-minimising) hedges are significantly affected by contract mispricings albeit in a manner not consistent enough to formulate general conclusions.