Background: There are various studies that confirm the efficiency of the Johannesburg Stock Exchange (JSE), implying that there are no opportunities for active portfolio managers to earn excess returns over the long run.Aim: The aim of the research is to prove that the sub-indices on the JSE go through cycles of efficiency and inefficiency even though the JSE as a whole might be considered informationally efficient.Setting: Although the JSE as a whole can be considered to be weak-form efficient, portfolio managers are not bound to investing in large liquid stocks alone. Many aggressive funds allow managers to also allocate a portion of their portfolio to smaller stocks. This has implications when considering the efficiency of the stocks being selected.Methods: Given the impact efficiency has on portfolio selection, we test for the adaptive market hypothesis using a representative sample of stock indices by means of the automatic variance ratio test, the Chow–Denning joint variance ratio and the joint sign test on the JSE.Results: Our results confirm that some of the smaller, and in some instances younger, indices are not always as efficient as the all share index, thus allowing portfolio managers with an active management approach some opportunities to profit from informational inefficiencies in the market.Conclusion: The practice of active management by portfolio managers in the South African market seems to defy logic if one considers the fact that the JSE as a whole is at the very least weak-form efficient. By proving that some of the sub-indices that make up the all share index are inefficient most of the time, this article shows that the phenomenon of active portfolio managers is less of a surprise.

Background: In the aftermath of the sub-prime crisis, systemic risk has become a greater priority for regulators, with the National Treasury (2011) stating that regulators should proactively monitor changes in systemic risk.Aim: The aim is to quantify systemic risk as the capital shortfall an institution is likely to experience, conditional to the entire financial sector being undercapitalised.Setting: We measure the systemic risk index (SRISK) of the South African (SA) banking sector between 2001 and 2013.Methods: Systemic risk is measured with the SRISK.Results: Although the results indicated only moderate systemic risk in the SA financial sector over this period, there were significant spikes in the levels of systemic risk during periods of financial turmoil in other countries. Especially the stock market crash in 2002 and the subprime crisis in 2008. Based on our results, the largest contributor to systemic risk during quiet periods was Investec, the bank in our sample which had the lowest market capitalisation. However, during periods of financial turmoil, the contributions of other larger banks increased markedly.Conclusion: The implication of these spikes is that systemic risk levels may also be highly dependent on external economic factors, in addition to internal banking characteristics. The results indicate that the economic fundamentals of SA itself seem to have little effect on the amount of systemic risk present in the financial sector. A more significant relationship seems to exist with the stability of the financial sectors in foreign countries. The implication therefore is that complying with individual banking regulations, such as Basel, and corporate governance regulations promoting ethical behaviour, such as King III, may not be adequate. It is therefore proposed that banks should always have sufficient capital reserves in order to mitigate the effects of a financial crisis in a foreign country. The use of worst-case scenario analyses (such as those in this study) could aid in determining exactly how much capital banks could need in order to be considered sufficiently capitalised during a financial crisis, and therefore safe from systemic risk.

The Sharpe ratio is widely used as a performance evaluation measure for traditional (i.e., long only) investment funds as well as less-conventional funds such as hedge funds. Based on meanvariance theory, the Sharpe ratio only considers the first two moments of return distributions, so hedge funds -characterised by complex, asymmetric, highly-skewed returns with non-negligible higher moments -may be misdiagnosed in terms of performance. The Sharpe ratio is also susceptible to manipulation and estimation error. These drawbacks have demonstrated the need for augmented measures, or, in some cases, replacement fund performance metrics. Over the period January 2000 to December 2011 the monthly returns of 184 international long/short (equity) hedge funds with investment mandates that span the geographical areas of North America, Europe, and Asia were examined. This study compares results obtained using the Sharpe ratio (in which returns are assumed to be serially uncorrelated) with those obtained using a technique which does account for serial return correlation. Standard techniques for annualising Sharpe ratios, based on monthly estimators, do not account for serial return correlation -this study compares Sharpe ratio results obtained using a technique which accounts for serial return correlation. In addition, this study assess whether the Bias ratio supplements the Sharpe ratio in the evaluation of hedge fund risk and thus in the investment decision-making process. The Bias and Sharpe ratios were estimated on a rolling basis to ascertain whether the Bias ratio does indeed provide useful additional information to investors to that provided solely by the Sharpe ratio.Keywords: Hedge Funds; Bias Ratio; Fraud; Risk Management; Sharpe Ratio INTRODUCTIONnstitutional investors and wealthy individuals have for a long time been interested in hedge funds as alternative investments to traditional asset portfolios, while the public's interest in the hedge fund industry has also increased through spectacular hedge fund activities, such as the collapse of Long Term Capital Management (LTCM) in the late 1990's. Since the early 1990's, hedge funds have become an increasingly popular asset class as global investment rose from US$50bn in 1990 to US$2.2tn in early 2007 (Barclayhedge, 2013). In March 2012, long/short equity funds accounted for the largest portion -23% -of the industry by assets (Citi, 2012). The hedge fund industry posted its sturdiest gains, in terms of asset flows and performance, between 2003 to 2007 where after the financial crisis significantly curtailed growth. However, industry growth reversed, declining to US$1.4tn by April 2009 due to substantial investor redemptions and performance-based declines (Eurekahedge, 2012). In April 2013, total assets under management (AUM) for the hedge fund industry had risen to only US$1.9tn (Eurekahedge, 2013) Source: Barclayhedge (2013) Although most comparisons of hedge fund returns concentrate exclusively on total return values, comparing funds with different expec...

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There is a large body of research that proves the co-movement of international stock markets over time. This co-movement manifests through various instruments ranging from stocks and bonds, to soft commodities and can be visualised as returns and volatility spill-over effects. During the most recent financial crisis, it was once again highlighted that no market is immune to spill-over effects from other international markets. By employing an aggregate-shock (AS) model, returns and volatility spill-over effects of the Hang Seng, London, Paris, Frankfurt and New York stock markets to the JSE are confirmed. The findings also confirm the JSE All share index is directly affected through contagion by the returns of the economic area where the crisis originates. However, the results further confirm that South Africa has progressed in shielding its stock market against financial crises in recent times. These findings hold important implications for stock portfolio managers in South Africa.