Trends in the South African Hedging Space Part II: Measuring Risk and Finding Return

Peregrine Securities 2013

32 Pages Posted: 22 Apr 2016

See all articles by Emlyn James Flint

Emlyn James Flint

Legae Peresec; Department of Actuarial Science, University of Cape Town

Anthony Seymour

University of Cape Town (UCT)

Florence Chikurunhe

Peregrine Securities

Date Written: October 4, 2013

Abstract

This report focusses on three particular areas of risk, effectively covering high-level risk drivers, low-level risk interactions and finally cross-sectional risk opportunities.

1) In prior work, we showed that a simple 3-factor global model explained a high percentage of local equity index movement up to mid-2008. We update our model and show a recent decoupling of local and global markets and the introduction of a risk on/risk off factor.

2) We examine whether the 'myth of diversification' (greater dependence during market crashes) holds true for South African markets by introducing the idea of exceedence risk measures. We also showcase several alternative asset classes that provide natural diversification potential for long-only portfolios 3) We study the cross-sectional volatility (CSV) of South African equity markets and show that it is a good measure of the opportunity set available to managers. Building on this, we outline a simple method to correct fund performance measures for the changing CSV backdrop and thus obtain better measures of manager skill.

Keywords: risk factor modelling, best-subsets regression, exceedence correlation, conditional correlation, cross-sectional volatility

JEL Classification: C14, C15, C21, C22, C4

Suggested Citation

Flint, Emlyn James and Seymour, Anthony and Chikurunhe, Florence, Trends in the South African Hedging Space Part II: Measuring Risk and Finding Return (October 4, 2013). Peregrine Securities 2013. Available at SSRN: https://ssrn.com/abstract=2767421 or http://dx.doi.org/10.2139/ssrn.2767421

Emlyn James Flint (Contact Author)

Legae Peresec ( email )

15 Cavendish Street
Claremont
Cape Town, Western Cape 7700
South Africa
27117227556 (Phone)

HOME PAGE: http://www.legaeperesec.co.za

Department of Actuarial Science, University of Cape Town ( email )

Actuarial Science Section, University of Cape Town
Private Bag X3, Rondebosch
Cape Town, Western Cape 7701
South Africa
+27 21 650 2475 (Phone)

Anthony Seymour

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Florence Chikurunhe

Peregrine Securities ( email )

21 Main Road
Claremont
Cape Town, Western Cape 7700
South Africa
+27117227551 (Phone)

HOME PAGE: http://www.peregrine.co.za

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
24
Abstract Views
193
PlumX Metrics