An empirical investigation into cross-sectional return dispersion on the South African equity market

[摘要] ENGLISH ABSTRACT: This study examines the role of cross-sectional return dispersion in portfolio management by examining two topics. To begin with, the study considers why return dispersion changes over time. Given the influence of return dispersion on active portfolio return opportunity, it is important for managers to understand why return dispersion changes over time. For a sample of South African listed shares over the period June 1996 to December 2011, univariate time-series analysis reveals significant serial correlation in return dispersion which may be modelled using ARMA (1, 1) and GARCH (1, 1) processes. Further analysis within a rational economic framework reveals that return dispersion is countercyclical to aggregate economic activity and related to both local and foreign economic uncertainty.The study then considers the relationship between return dispersion and the return to investment strategies. If substantial association between return dispersion and any investment strategy exists, then it is possible for managers and fund sponsors to augment an understanding of when active return opportunity is high with strategies for exploiting return opportunities. Continuing within the rational economic framework, the study uses Spearman‟s rank correlation coefficients to show a significant positive relationship between return dispersion and the value premium. In aggregate, these findings suggest that it is possible for South African investors to understand why return dispersion changes over time, as well as how to take advantage of changes in return dispersion.

[发布机构] Stellenbosch University