Effects of investment style risks on expected returns on the Johannesburg Stock Exchange: A cross-sector analysis

Abstract

Market Segmentation and style investing have become an essential part of security management over the past 40 years. There are many factors that separate the market, these include economy, investor behaviours, and specific anomalies. Apart, from the segmentation, investors lean towards a few tested investment styles and sectors, which hinder growth, while, dividing the market further. Thus, a major question arises on what really drives asset performance in the South African equity market. An evaluation of the relationship between sector performance and style anomalies over time is essential. Howbeit, the topic of market anomalies tends to be controversial because the presence of market anomalies varies from sample to sample, this implies that it is difficult to generalize the effect of market anomalies on stock returns. Additionally, it has been shown that aftermarket anomalies are analysed and documented in academic literature, they often disappear, reverse or weaken. Thus, a study on this topic will give investors a broader view of different methods, which can be used to estimate expected returns, as no one model has been said to be accurate. Moreover, this study examined the relationship that exists between security returns and anomalies. The research further went on to investigate the relationship between style anomalies and security returns using the multifactor asset models. In addition to this, the study scrutinized the consistency of the inter-relationship being investigated before and after the 2008 global financial crisis. The key objective of this study was to examine the effects of market anomalies on the performance of securities on the resources, industrial and financial sectors of the JSE including the applicability of the Fama and French five-factor model.