Cyclicality of size, value, and momentum on the Johannesburg Stock Exchange

The study examines the cyclical behaviour of style premiums on the Johannesburg Stock Exchange (JSE) over the period 2002–2018. More specifically, the study establishes whether there is a contemporaneous relationship between style premiums and certain regime dynamics. The examination period extends over two consecutive business cycles, each with an upward and a downward phase. A robust factor-mimicking portfolio construction procedure is employed. Findings show that the small-cap risk premium shrinks significantly or becomes negative during downward phases while the momentum premium is strongly positive throughout the study period, but is lower during downward phases. The value premium is positive during downward periods and particularly strong around the 2008 financial crisis period, but is low or negative during upward phases. Thus, the size and momentum effects are procyclical while the value effect is countercyclical on the JSE. The study adds to the limited JSE-related literature and is likely to be of interest to factor allocation investors wanting to exploit the phases of the business cycle.