An in-depth validation of momentum as a dominant explanatory factor on the Johannesburg Stock Exchange

• Main Author: Page, Moshe Daniel
• Format: Others
• Language: en
• Published: 2018
• Subjects: Investment analysis > South Africa; Stocks > Prices > South Africa; Stock price forecasting; Johannesburg Stock Exchange
• Online Access: Page, Moshe Daniel (2017) An in-depth validation of momentum as a dominant explanatory factor on the Johannesburg Stock Exchange, University of the Witwatersrand, Johannesburg, <https://hdl.handle.net/10539/24119>; https://hdl.handle.net/10539/24119

A thesis submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, in fulfilment of the requirements for the degree of Doctor of Philosophy (Ph.D), September 2016 === This study considers momentum in share prices, per Jegadeesh and Titman (1993, 2001), on the cross-section of shares listed on the JSE. The key research objective is to define whether momentum is significant, independent and priced. ‘Significant’ implies that momentum produces significantly positive nominal and risk-adjusted profits, ‘independent’ means that momentum is independent of other non-momentum stylistic factor premiums and finally, ‘priced’ suggests that momentum is a priced factor on the JSE and thereby contributes to the cross-sectional variation in share returns. In order to determine the significance of the momentum premium on the JSE, univariate momentum sorts are conducted that consider variation in portfolio estimation and holding periods, weighting methodologies as well as liquidity constraints, price impact and microstructure effects. The results of the univariate sorts clearly indicate that momentum on the JSE is both significant and profitable assuming estimation and holding periods between three and twelve months. Furthermore, consistent with international and local literature, momentum profits reverse assuming holding periods in excess of 24 months. In order to determine whether momentum is independent, bivariate sorts and time-series attribution regressions are conducted using momentum and six non-momentum factors, namely: Size, Value, Liquidity, Market Beta, Idiosyncratic Risk and Currency Risk. The results of the bivariate sorts and time-series attribution regressions clearly indicate that momentum on the JSE is largely independent of the nonmomentum stylistic factors considered. Lastly, cross-sectional panel regressions are conducted where momentum is applied, in conjunction with the considered non-momentum factors, as an independent variable in order assess the relationship between the factors and expected returns on a share-by-share basis. The results of the panel data cross-sectional regressions clearly indicate that momentum produces a consistently significant and independent premium, conclusively proving that momentum is a priced factor that contributes to the cross-sectional variation in share returns listed on the JSE. === XL2018