Style-Based Effects on the Johannesburg Stock Exchange: A Graphical Time-Series Approach

Abstract

Fama and French (1992), in a controversial paper at the time, noted strong associations between cross-sectional equity returns and so-called style variables including size, the price to earnings (P/E) ratio, gearing and the book to market (B/M) ratio. Other researchers have subsequently identified further priced effects relating to (inter-alia): dividends, momentum, cash-flow and a January effect. Many of these have been identified on the Johannesburg Stock Exchange (JSE), (see: (Page & Palmer, 1991), (Page, 1996), (Plaistowe & Knight, 1987), (Fraser & Page, 2000), (van Rensburg, 2001) and (Mutooni & Muller, 2007)).We re-examine many of these styles using an improved methodology and data set. We find that portfolios constructed on the basis of univariate ranked style characteristics exhibit significant effects over the period 1985 to 2011. Most notably, we find significant and persistent excess returns in the following variables: momentum, earnings yield, dividend yield, price to book, cash-flow to price, liquidity, return on capital, return on equity and interest cover. Furthermore, we find no evidence of a size effect, except for fledgling companies.