Last week Profs Chris van Heerden and Andre Heymans presented papers at the annual conference of the South African Finance Association in Cape Town.
The title of Chris’ paper was: The ideal risk-free rate proxy: A South African perspective.
Andre asked, How efficient is the JSE really?
The abstract tells the story:
There are various studies that confirm the efficiency of the JSE, not only for fixed periods, but also on an evolving efficiency basis. This implies that there are no opportunities for active portfolio managers to earn excess returns over the long run. Portfolio managers are however not bound to investing in large liquid stocks alone. Many aggressive funds allow for managers to also allocate a portion of their portfolio to smaller and sometimes less liquid stocks. This study tests for the Adaptive Market Hypothesis using a representative sample of stock indices by means of the automatic variance ratio (AVR) test, the variance ratio (VR) test and the joint sign (JS) test. The results confirm that some of the smaller indices are not always as efficient as the All-Share index, thus allowing active portfolio managers some opportunities to profit from inefficiencies on the market.