Original Research

How efficient is the Johannesburg Stock Exchange really?

André Heymans, Leonard Santana
South African Journal of Economic and Management Sciences | Vol 21, No 1 | a1968 | DOI: https://doi.org/10.4102/sajems.v21i1.1968 | © 2018 André Heymans, Leonard Santana | This work is licensed under CC Attribution 4.0
Submitted: 05 June 2017 | Published: 29 October 2018

About the author(s)

André Heymans, Department of Risk Management, School of Economics, North-West University, South Africa
Leonard Santana, School of Mathematical and Statistical Sciences, North-West University, South Africa


Background: There are various studies that confirm the efficiency of the Johannesburg Stock Exchange (JSE), implying that there are no opportunities for active portfolio managers to earn excess returns over the long run.

Aim: The aim of the research is to prove that the sub-indices on the JSE go through cycles of efficiency and inefficiency even though the JSE as a whole might be considered informationally efficient.

Setting: Although the JSE as a whole can be considered to be weak-form efficient, portfolio managers are not bound to investing in large liquid stocks alone. Many aggressive funds allow managers to also allocate a portion of their portfolio to smaller stocks. This has implications when considering the efficiency of the stocks being selected.

Methods: Given the impact efficiency has on portfolio selection, we test for the adaptive market hypothesis using a representative sample of stock indices by means of the automatic variance ratio test, the Chow–Denning joint variance ratio and the joint sign test on the JSE.

Results: Our results confirm that some of the smaller, and in some instances younger, indices are not always as efficient as the all share index, thus allowing portfolio managers with an active management approach some opportunities to profit from informational inefficiencies in the market.

Conclusion: The practice of active management by portfolio managers in the South African market seems to defy logic if one considers the fact that the JSE as a whole is at the very least weak-form efficient. By proving that some of the sub-indices that make up the all share index are inefficient most of the time, this article shows that the phenomenon of active portfolio managers is less of a surprise.


Adaptive market hypothesis; varying market efficiency; JSE indices


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