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Investigating Chaos on the Johannesburg Stock Exchange

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  • Prince Kwasi Sarpong
  • Mabutho Sibanda
  • Merle Holden

Abstract

This study investigates the existence of chaos on the Johannesburg Stock Exchange (JSE) and studies three indices namely the FTSE/JSE All Share, FTSE/JSE Top 40 and FTSE/JSE Small Cap. Building upon the Fractal Market Hypothesis to provide evidence on the behavior of returns time series of the above mentioned indices, the BDS test is applied to test for non-random chaotic dynamics and further applies the rescaled range analysis to ascertain randomness, persistence or mean reversion on the JSE. The BDS test shows that all the indices examined in this study do not exhibit randomness. The FTSE/JSE All Share Index and the FTSE/JSE Top 40 exhibit slight reversion to the mean whereas the FTSE/JSE Small Cap exhibits significant persistence and appears to be less risky relative to the FTSE/JSE All Share and FTSE/JSE Top 40contrary to the assertion that small cap indices are riskier than large cap indices.

Suggested Citation

  • Prince Kwasi Sarpong & Mabutho Sibanda & Merle Holden, 2016. "Investigating Chaos on the Johannesburg Stock Exchange," Journal of Economics and Behavioral Studies, AMH International, vol. 8(5), pages 56-67.
    • Handle: RePEc:rnd:arjebs:v:8:y:2016:i:5:p:56-67
    DOI: 10.22610/jebs.v8i5(J).1431
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    References listed on IDEAS

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    1. Opong, Kwaku K. & Mulholland, Gwyneth & Fox, Alan F. & Farahmand, Kambiz, 1999. "The behaviour of some UK equity indices: An application of Hurst and BDS tests1," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 267-282, September.
    2. R. David Mclean & Jeffrey Pontiff, 2016. "Does Academic Research Destroy Stock Return Predictability?," Journal of Finance, American Finance Association, vol. 71(1), pages 5-32, February.
    3. Keith Jefferis & Graham Smith, 2005. "The Changing Efficiency Of African Stock Markets," South African Journal of Economics, Economic Society of South Africa, vol. 73(1), pages 54-67, March.
    4. Olatundun Adelegan, 2003. "Capital Market Efficiency and the Effects of Dividend Announcements on Share Prices in Nigeria," African Development Review, African Development Bank, vol. 15(2‐3), pages 218-236.
    5. Graham Smith, 2008. "Liquidity And The Informational Efficiency Of African Stock Markets," South African Journal of Economics, Economic Society of South Africa, vol. 76(2), pages 161-175, June.
    6. Olatundun Janet Adelegan, 2009. "Price Reactions to Dividend Announcements on the Nigerian Stock Market," Working Papers 188, African Economic Research Consortium, Research Department.
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    Cited by:

    1. Emrah BALKAN & Umut UYAR, 2022. "The Fractal Structure of CDS Spreads: Evidence from the OECD Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 106-121, April.
    2. Adam Karp & Gary Van Vuuren, 2019. "Investment Implications Of The Fractal Market Hypothesis," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 14(01), pages 1-27, March.

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