Investigating Chaos on the Johannesburg Stock Exchange
Sarpong, P.K., Sibanda, M & Holden, M (2016). Investigating Chaos on the Johannesburg Stock Exchange. Journal of Economics and Behavioral Studies, 8 (5), 56-67.
12 Pages Posted: 31 Oct 2016
Date Written: October 31, 2016
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 40 contrary to the assertion that small cap indices are riskier than large cap indices.
Keywords: Fractal Market Hypothesis, Efficient Market Hypothesis, Chaos Theory, Rescaled Range Analysis
JEL Classification: C10, G10
Suggested Citation: Suggested Citation