Original Research

Re-examining the ability to explain future South African banking share returns: A data envelopment analysis approach

Chris van Heerden, Johan Coetzee
South African Journal of Economic and Management Sciences | Vol 22, No 1 | a2852 | DOI: https://doi.org/10.4102/sajems.v22i1.2852 | © 2019 Chris van Heerden, Johan Coetzee | This work is licensed under CC Attribution 4.0
Submitted: 18 October 2018 | Published: 16 September 2019

About the author(s)

Chris van Heerden, School of Economics, Faculty of Economic and Management Sciences, North-West University, Potchefstroom,, South Africa
Johan Coetzee, Department of Economics and Finance, Faculty of Economic and Management Sciences, University of the Free State, Bloemfontein, South Africa


Background: Using financial ratios is considered to be important when making informed judgments about investment portfolios. However, the ‘ideal’ set of ratios is an elusive notion on which the literature has failed to reach any consensus.

Aim: This study attempts to identify to what extent so-called ‘non-financial’ measures can outperform ‘traditional’ financial and risk-adjusted performance ratios to explain future share returns for South African banks in a momentum investment strategy.

Method: A multi-stage data envelopment analysis model was used in the study.

Results: The results suggest that non-financial measures are able to explain up to 90% of banking shares’ future returns, which is a 30% to 40% improvement on that of traditional financial and risk-adjusted performance ratios. In identifying the ‘ideal’ set of ratios for the South African banking industry, this study also found that pure technical efficiency, the price-to-earnings ratio and the static omega ratio were able to explain up to an average of 83% of future banking share returns.

Conclusion: The study contributes to the field of portfolio management in that both risk-adjusted performance ratios and non-financial measures can be used as short-term and long-term investment decision-making tools. Further to this, the ability to explain future returns to some extent implies that the South African banking industry may be time-varying-information efficient.


Banking industry; data envelopment analysis; DEA; financial and non-financial measures; risk-adjusted performance ratios; South Africa.


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