Abstract
The persistence of performance of the General Equity Unit Trusts and All Unit Trusts that traded in South Africa during the period January 1988 to December 1997 and January 1993 to December 1997, is analysed using three models of performance measurement, namely the Capital Asset Pricing Model, a two-factor Arbitrage Pricing Theory model and a three-factor Arbitrage Pricing Theory (APT) model developed in this study. The Capital Asset Pricing Model does not explain the relative returns of the different portfolios. Both APT models account for almost all of the cross-sectional variation in expected returns. It is shown that there is evidence of both short-term and long-term persistence in performance of South African unit trusts. It appears that the worst performing unit trust portfolio tends to stay the worst performer. The portfolio of unit trusts with an average monthly return may eventually become the top performing portfolio, while the top performer over time tends to becomes an average performing portfolio.
Highlights
The aim of this study is to detennine whether evidence of persistence in perfonnance exists amongst South African unit trusts
The results of two-factor model indicates that the General Equity Unit Trust portfolios are less sensitive to the All Gold Index (AGOLD) than the All Share Unit Trust portfolios
High adjusted R-square values indicate a good fit between the perfonnance of the portfolios and the two-factor model, especially in the case of the high and medium return portfolios
Summary
The aim of this study is to detennine whether evidence of persistence in perfonnance exists amongst South African unit trusts. Data on a monthly basis for the ten-year period is obtained for the All Share Index, the All Gold Index and the Industrial Index, from I-Net. The monthly returns are calculated using the same method as for the portfolios. The monthly returns are calculated using the same method as for the portfolios This model is based on the findings of Van Rensburg & Slaney who claim that 'The empirical findings strongly suggest that a two index model, employing the JSE Industrial and All Gold Indices as "prescribed factors", is a more appropriate approach to adopt in asset pricing applications such as portfolio perfonnance evaluation and calculating South African companies' cost of equity capital' (1997: 20). The results of two-factor model indicates that the General Equity Unit Trust portfolios are less sensitive to the All Gold Index (AGOLD) than the All Share Unit Trust portfolios. High adjusted R-square values indicate a good fit between the perfonnance of the portfolios and the two-factor model, especially in the case of the high and medium return portfolios
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