THE RELATIONSHIP BETWEEN ΒETA AND STOCK RETURNS IN THE JSE SECURITIES EXCHANGE IN SOUTH AFRICA

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Raphael T Mpofu

DOI:10.22495/cocv9i1c5art5

Abstract

The purpose of this study was is to examine the relationship between stock βeta and returns in the JSE Securities Exchange. If the model is applicable in its entirety or can explain the beta-stock returns relationship, it raises an important academic question, mainly, how should the South African financial market be viewed by investors and portfolio managers, given the political-social-economical classifications that South Africa finds itself in, sometimes referred to as developing, emerging or underdeveloped? The time-series data used was from Sharenet as well as from the South African Reserve Bank macro-economic time series data. The sample period consisted of 10 years of monthly time series data between January 2001 and December 2010. Regression analysis was applied using the conditional approach. When using the conditional capital asset pricing model (CAPM) and cross-sectional regression analysis, the findings strongly supported the significant relationship between stock excess returns and βeta. However, the results do not provide strong evidence of a CAPM relation between risks and realized return trade-off in the South African financial markets. These results demonstrate that the South African financial markets are complex and financial tools, such as the CAPM can be used to explain complex financial phenomenon as in other developed markets, although complete reliance on the CAPM should be relied upon.

Keywords: South Africa, FTSE/JSE, CAPM, Portfolio Excess Return, Sharenet

How to cite this paper: Mpofu, R. T. (2011). The relationship between βeta and stock returns in the JSE securities exchange in South Africa. Corporate Ownership & Control, 9(1-5), 558-566. http://dx.doi.org/10.22495/cocv9i1c5art5