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Factorising equity returns in an emerging market through exogenous shocks and capital flows

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  • Diane Wilcox
  • Tim Gebbie

Abstract

A technique from stochastic portfolio theory [Fernholz, 1998] is applied to analyse equity returns of Small, Mid and Large cap portfolios in an emerging market through periods of growth and regional crises, up to the onset of the global financial crisis. In particular, we factorize portfolios in the South African market in terms of distribution of capital, change of stock ranks in portfolios, and the effect due to dividends for the period Nov 1994 to May 2007. We discuss the results in the context of broader economic thinking to consider capital flows as risk factors, turning around more established approaches which use macroeconomic and socio-economic conditions to explain Foreign Direct Investment (into the economy) and Net Portfolio Investment (into equity and bond markets).

Suggested Citation

  • Diane Wilcox & Tim Gebbie, 2013. "Factorising equity returns in an emerging market through exogenous shocks and capital flows," Papers 1306.5302, arXiv.org, revised Jul 2013.
    • Handle: RePEc:arx:papers:1306.5302
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