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A behavioural asset pricing approach : perspectives from the South African stock market
Thesis (PhD)--Stellenbosch University, 2024.
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| Format: | Thesis |
| Language: | en_ZA |
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Stellenbosch : Stellenbosch University
2025
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| _version_ | 1867613823469355008 |
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| access_status_str | Open Access |
| author | De Vries, Annalien |
| author2 | Erasmus, Pierre |
| author_browse | De Vries, Annalien Erasmus, Pierre |
| author_facet | Erasmus, Pierre De Vries, Annalien |
| author_sort | De Vries, Annalien |
| collection | Thesis |
| dc_rights_str_mv | Stellenbosch University |
| description | Thesis (PhD)--Stellenbosch University, 2024. |
| format | Thesis |
| id | oai:scholar.sun.ac.za:10019.1/131637 |
| institution | Stellenbosch University (South Africa) |
| language | en_ZA |
| last_indexed | 2026-06-10T12:42:15.919Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from SUNScholar — Stellenbosch University Repository |
| publishDate | 2025 |
| publishDateRange | 2025 |
| publishDateSort | 2025 |
| publisher | Stellenbosch : Stellenbosch University |
| publisherStr | Stellenbosch : Stellenbosch University |
| record_format | dspace |
| source_str | SUNScholar — Stellenbosch University Repository |
| spelling | oai:scholar.sun.ac.za:10019.1/131637 A behavioural asset pricing approach : perspectives from the South African stock market De Vries, Annalien Erasmus, Pierre Gorgens, Gina Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management. Finance -- Psychological aspects Investments -- Psychological aspects Investments -- Decision making Human behavior -- Economic aspects Economics -- Psychological aspects Stock exchanges UCTD Thesis (PhD)--Stellenbosch University, 2024. ENGLISH SUMMARY: The estimation of a company’s cost of equity has been the subject of extensive debate due to its subjective nature. Existing asset pricing models being employed to estimate the cost of equity (returns) assume investors have homogeneous beliefs and expectations pertaining to expected returns. There is, however, heterogeneity in investors’ expectations of returns. Due to this heterogeneity not being accounted for, the accuracy of existing asset pricing models is questioned. To improve its accuracy, sentiment stochastic processes can be incorporated into asset pricing models to account for the heterogeneity in the decision-making of multiple investors in the market, during different market conditions. Prior research in South Africa has concluded that investor sentiment should be considered an explanatory variable in asset pricing models; however, none of these studies have augmented existing asset pricing models such as the Carhart four-factor (CH4) model, with an investor sentiment variable. The primary objective of the current research was, therefore, to account for the human element in the South African stock market, by investigating the impact of investor sentiment on the cross-sectional variation of the cost of equity for securities listed on the Johannesburg Stock Exchange (JSE) for the period 2003 to 2019. To address this aim, the CH4-model was augmented with investor sentiment as an affective risk factor. One indirect measure (composite sentiment index) and three direct measures (survey and textual analysis-based measures) were empirically tested. By employing a judgement sampling technique, the final sample comprised of 321 securities that formed part of the FTSE/JSE All share index (ALSI) over the 17-year study period. Variations of regression analyses were employed for hypothesis testing. Ordinary least squares (OLS) time-series regressions revealed that a statistically significant relationship exists between returns and the direct measures of investor sentiment only. These results indicated that direct and indirect measures of investor sentiment contain unique information. A further finding was that the two direct proxies that resembled sentiment toward the economic and business conditions in South Africa, reported significant explanatory power for returns, of which the proxy measured by means of textual analysis was the most significant predictor. OLS regressions were also conducted for high and low sentiment periods, to assess the statistical significance of the CH4-model risk factors during different sentiment periods. The regressions uncovered contrasting results for only the momentum risk factor. During low sentiment periods, the relationship between the momentum factor and returns was negative and not significant, whilst high sentiment periods revealed a positive and statistically significant relationship. It was, thus, concluded that trading behaviour in the South African stock market, vary across high and low sentiment periods. This finding is in line with Lo’s (2004) adaptive market hypothesis. The Fama and Macbeth (FM) (1973) two-stage regression approach confirmed that investor sentiment does have a statistically significant impact on the cross-sectional variation of the cost of equity for JSE-listed securities. Similar to the OLS regressions, the two direct measures that reflect investors’ overall sentiment towards the country and the business climate within the country, were significant predictors of returns. Furthermore, contrasting relationships were reported between the use of constant and rolling betas. The difference in the direction of the cross-sectional association, confirms the argument that the association between sentiment and returns can be either positive or negative, depending on conditions within the market and economy. The current research makes an important theoretical contribution to asset pricing research and behavioural finance research in South Africa, by providing a theoretical justification for why investor sentiment should be incorporated into asset pricing models. A methodological contribution was also made by constructing a composite investor sentiment index for the South African stock market, and by investigating and comparing several diverse measures of investor sentiment. Educators, investors, financial managers and policymakers are encouraged to incorporate investor sentiment in their curriculums, investment strategies, cost of equity estimations and monetary policies, to reap the potential benefits from emphasising the individuals, whose collective behaviour ultimately drives markets. AFRIKAANSE OPSOMMING: Die beraming van ʼn maatskappy se koste van ekwiteit is die onderwerp van ʼn omvattende debat as gevolg van die subjektiewe aard daarvan. Bestaande kapitaalbateprysmodelle wat gebruik word om die koste van ekwiteit (opbrengs) te beraam, aanvaar dat beleggers gelyksoortige oortuigings en verwagtinge het wat verwagte opbrengste betref. Daar is egter teenstrydigheid in beleggers se verwagtinge van opbrengste. As gevolg van hierdie heterogeniteit wat nie in ag geneem word nie, word die akkuraatheid van bestaande kapitaalbateprysmodelle bevraagteken. Om die akkuraatheid daarvan te verbeter, kan sentiment-stogastiese prosesse in kapitaalbateprysmodelle geinkorporeer word om rekenskap te gee vir die ongelyksoortigheid in die besluitneming van verskeie beleggers in die mark tydens verskillende marktoestande. Bestaande navorsing in Suid-Afrika dui daarop dat beleggersentiment as ʼn verklarende veranderlike in kapitaalbateprysmodelle beskou moet word. Nie een van hierdie studies het egter bestaande kapitaalbateprysmodelle soos die Carhart-vierfaktormodel (CH4-model) aangevul met ʼn beleggersentiment veranderlike nie. Die primere doelwit van die huidige navorsing is dus om die menslike element in Suid-Afrikaanse aandelemark te verduidelik. Dit word gedoen deur ondersoek in te stel na die impak van beleggersentiment op die deursneevariasie van die koste van ekwiteit vir sekuriteite wat op die Johannesburgse Aandelebeurs (JSE) genoteer is tussen 2003 en 2019. Om hierdie doel te bereik is die CH4-model aangevul met beleggersentiment as ʼn affektiewe risikofaktor. Een indirekte maatstaf (saamgestelde sentimentindeks) en drie direkte instrumente (opname- en teksgebaseerde maatstawwe) is empiries getoets. Deur ʼn oordeelsteekproeftegniek te gebruik, het die finale steekproef bestaan uit 321 sekuriteite wat deel uitgemaak het van die FTSE/JSE se indeks van alle aandele oor die 17-jaar studietydperk. Variasies van regressie-ontledings is vir hipotesetoetsing gebruik. Gewone kleinste kwadrate (“OLS”) tydreeksregressies het onthul dat ʼn statisties beduidende verband slegs tussen opbrengste en die direkte maatstawwe van beleggersentiment bestaan. Hierdie resultate het aangedui dat direkte en indirekte maatstawwe van beleggersentiment unieke inligting bevat. ʼn Verdere bevinding is dat die twee direkte maatstawwe wat sentiment teenoor die ekonomiese en saketoestande in Suid-Afrika reflekteer, beduidende verklarende krag vir opbrengste gemeld het waarvan die maatstaf wat deur middel van teksanalise gemeet is, die mees beduidende voorspeller was. “OLS”-regressies is ook vir hoe en lae sentimentperiodes uitgevoer om die statistiese beduidendheid van die CH4-model risikofaktore gedurende verskillende sentimentperiodes te bepaal. Die regressies het kontrasterende resultate ontbloot vir slegs die momentum-risikofaktor. Tydens lae sentimentperiodes was die verhouding tussen die momentumfaktor en opbrengste negatief en nie beduidend nie, terwyl hoe sentimentperiodes ʼn positiewe en statisties beduidende verwantskap aan die lig gebring het. Die gevolgtrekking is dus dat gedrag ten opsigte van verhandeling in die Suid-Afrikaanse aandelemark oor hoe en lae sentimentperiodes verskil. Hierdie bevinding is in ooreenstemming met Lo (2004) se aanpasbare markhipotese. Die tweefase-regressiebenadering van Fama en Macbeth (1973) het bevestig dat beleggersentiment wel ʼn statisties beduidende impak op die deursneevariasie van die koste van aandele vir JSE-genoteerde sekuriteite het. Soortgelyk aan die “OLS”-regressies was die twee direkte maatstawwe wat beleggers se algehele sentiment teenoor die land en die sakeklimaat binne die land weerspieël, beduidende voorspellers van opbrengste. Verder is daar melding gemaak van kontrasterende verwantskappe tussen die gebruik van konstante en lopende betas. Die verskil in die rigting van die deursnee-assosiasie bevestig die argument dat die verband tussen sentiment en opbrengste of positief of negatief kan wees, afhangende van toestande binne die mark en ekonomie. Die huidige navorsing lewer ʼn belangrike teoretiese bydrae tot kapitaalbateprysnavorsing en gedragsfinansieringsnavorsing in Suid-Afrika deur ʼn teoretiese regverdiging te verskaf waarom beleggersentiment by kapitaalbateprysmodelle geinkorporeer moet word. ’n Metodologiese bydrae is ook gelewer deur ʼn saamgestelde beleggersentimentindeks vir die Suid-Afrikaanse aandelemark op te stel, asook deur verskeie uiteenlopende maatstawwe van beleggersentiment te ondersoek en te vergelyk. Opvoeders, beleggers, finansiele bestuurders en beleidsbepalers word aangemoedig om beleggersentiment te inkorporeer in hulle kurrikulums, beleggingstrategiee, kosteberaming van ekwiteit en monetere beleide om die potensiele voordele te trek deur op die individue te fokus wie se kollektiewe gedrag uiteindelik markte dryf. Doctoral 2025-02-03T07:00:32Z 2025-02-03T07:00:32Z 2024-12 Thesis https://scholar.sun.ac.za/handle/10019.1/131637 en_ZA Stellenbosch University xvi, 344 pages : illustrations, includes annexures application/pdf Stellenbosch : Stellenbosch University |
| spellingShingle | Finance -- Psychological aspects Investments -- Psychological aspects Investments -- Decision making Human behavior -- Economic aspects Economics -- Psychological aspects Stock exchanges UCTD De Vries, Annalien A behavioural asset pricing approach : perspectives from the South African stock market |
| title | A behavioural asset pricing approach : perspectives from the South African stock market |
| title_full | A behavioural asset pricing approach : perspectives from the South African stock market |
| title_fullStr | A behavioural asset pricing approach : perspectives from the South African stock market |
| title_full_unstemmed | A behavioural asset pricing approach : perspectives from the South African stock market |
| title_short | A behavioural asset pricing approach : perspectives from the South African stock market |
| title_sort | behavioural asset pricing approach perspectives from the south african stock market |
| topic | Finance -- Psychological aspects Investments -- Psychological aspects Investments -- Decision making Human behavior -- Economic aspects Economics -- Psychological aspects Stock exchanges UCTD |
| url | https://scholar.sun.ac.za/handle/10019.1/131637 |
| work_keys_str_mv | AT devriesannalien abehaviouralassetpricingapproachperspectivesfromthesouthafricanstockmarket AT devriesannalien behaviouralassetpricingapproachperspectivesfromthesouthafricanstockmarket |