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Whether its political unrest, economic downtown, legal influences, war in a country and most recent in terms of South Africa the new president and elimination of former president who was said to be corrupt and the budget speech, it all has more of an effect than just merely the mentioned. A country’s stock exchange is affected by issues of the country as no investor likes taking unnecessary risk that may end up being greater than their expected return.
South Africa has come a long way from the years of apartheid to the election of the first black president which was the beginning of the democratic era to date. This influenced the country’s stock exchange, specifically the Johannesburg stock exchange also referred in this literature review as the JSE. This literature review is constructed to give the reader a sense of the degree efficiency of the Johannesburg stock exchange over the years.
This literature review will:
• create an idea of the route that the JSE has been taking in terms of market efficiency over the years.
• It will then compare how south Africa was affected by the great recession or global financial crisis of 2012.
• compare the JSE to the Nigerian stock exchange(NSE) with Nigeria being one of the top developing makets in Africa then compare the JSE with stock exchanges of the developed nations.
• thereafter identify some of the problems in the stock market as well as solutions to them

The progression of the Johanesburg stock market efficiency can be traced from way back in time. A study conducted in 2012 which is the 1st one in SA to test for the day of the week effect on skewness and kurtosis. The study of empirical results showed no evidence of the day-of-the-week effect on skewness and kurtosis for eight of the 9 JSE stock market sectors. Chipeta, C., & Mbululu, D detected a Monday effect for the basic materials sector only and found the JSE to be weak-form efficient from 1995 to 2011. In Ferreira, P., & Van M. C. M (2014) the black economic empowerment (BEE) score which consisted of 7 elements, including ownership, employment equity and skills development. Its aim was to establish if a relationship existed between the entity’s elements and its share returns in the short run. This was based on previous literature and it appears that the market reacted positively to an introduction of a black economic empowerment deal. The study used a multivariate regression analysis that controlled for factors impacting returns of shares. They included the black economic empowerment element data as obtained from the survey of the top empowerment companies carried out by financial mail from year 2005 to year 2011.Results showed that a great positive relationship existed between the way the black economic empowerment elements score was managed and the entity’s share returns. Their research contributed to the literature on black economic empowerment in the commerce in SA and complements the understanding and effect of black economic empowerment compliance by the introduction of the generic scorecard as it’s a requirement of the 2007 codes of good practice. The result found can be useful to a lot of stakeholders in the equity market. BEE aims to re address the economic imbalances of the past and redistribute resources evenly between different races, the imbalance occurred as result of apartheid which is mentioned earlier on in the literature review
In December 01, 2015 La, G. P. L., ; Krige, J. D which evaluated the profitability of practicality of momentum strategies on the JSE over a timeframe of January 1998 to around midyear of 2013 and compared the risk-adjusted return that ALSI40 could achieve. The study found that, even after they adjusted for risk and included transaction costs, momentum strategies still provided abnormal annualised returns more than up to 8.7% of that it was benchmarked against. The effect of the portfolio start date was also evaluated, although there was little evidence of calendar year effect, strategies of momentum continued providing robust returns. By implementing a fixed stop-loss arrangement they then attempted to improve the return of momentum strategies, without a meaningful improvement in returns. Lastly, the strategies of momentum are combined with other financial ratios and resulted in improved annualised risk-adjusted returns of up to 14.1% more than its benchmark.
Grater, E., ; Struweg, J. (July 01, 2015) built on the work on efficiency of developing markets while focusing attention specifically on the Johannesburg stock exchange. The empirical work on the efficiency of the JSE was mixed; evidence both for and against weak form efficiency was apparent. When markets are efficient then new information influences market prices as soon as possible; prices of stock follow a random walk and investors are not able to earn abnormal returns continuously. In the study, the Augmented Dickey-Fuller as well as the Phillips-Perron tests were employed to determine whether the Johannesburg stock exchange followed a random walk between 1999 and 2014. With (H0) being the null hypothesis for both tests it was found that the series of logarithmic returns had a unit root and therefore being weak form efficient. H0 was rejected in both the test, which proved that for the period that was analysed, the Johannesburg stock exchange wasn’t weak form efficient. Influence of factors like market size and liquidity on efficiency was also referred to in this journal
In the mid-1980s there was a suggestion that liquidity could be a factor influencing returns of stock. However, in the SA equity market, studies discovered that these liquidity effects were still limited. Theart, L., & Krige, N. (September 01, 2014), in contrary to most US based studies, found that liquidity wasn’t a big risk factor affecting broad returns of markets. They found that the effect was greater in small- and low-liquidity portfolios only. Theart, L., ; Krige, N. found that including liquidity as a factor improved the Fama-French three-factor model in capturing shared variation in stock returns. Lastly, incorporation of a liquidity style into two passive portfolio strategies yielded weak evidence of enhanced risk-adjusted performance.
Thomas, V., ; Gossel, Sean J. (2017) The authors aimed to test,the semi-strong form efficiency of the Johannesburg Stock Exchange through conducting a study of portfolio which aimed in understanding whether certain firm characteristics or strategies could be utilised to create portfolios of shares that would yield high returns when compared to the stock market. In the semi-strong form, market efficiency is through the fact that all public information is made and processed efficiently, making it impossible to yield abnormal returns by making use of investment strategies that utilise this information. The price to book value ratio, the price to earnings ratio, market capitalisation, and the share price momentum were used for determining strategies. The results demonstrate that an investment strategy consisting of shares with high price momentum outperformed the market during the time by generating significant abnormal returns. The study discovered that portfolios that had high capitalised share generated more returns and outperformed the market for the period. This study shows that certain characteristics of a firm in the past can be useful in predicting future returns. Here they found evidence of semi-strong and weak form efficiency of the JSE

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Response of the JSE to the financial crisis compared to the response of other stock exchanges and ways to mitigate this risk in the future Heymans, A., ; Da, C. R. (2013). In the last crisis, it was made known that “no market is immune to spill-over effects from other international markets”. To confirm this, the article found that Frankfurt and New York stock spill overs affected the JSE. The findings also confirm the Johannesburg stock exchanges AlSI is directly affected through contagion by the returns of the economic area where the crisis originates. The results further confirmed that South Africa has successfully made progress in shielding its stock market against financial crises in recent times. The discoveries held useful implications for South African stock portfolio managers.
In Noakes, M. A., ; Rajaratnam, K. (2016) it was suggested that stock exchanges could be tested for market efficiency. In the last crisis, it was made clear that no market is immune to spill-over effects from other international markets. By employing an aggregate shock (AS) model, returns and volatility spill-over effects of developed markets to the JSE are confirmed. The findings also confirm the Johannesburg stock exchanges AlSI is directly affected through contagion by the returns of the economic area where the crisis originates. The results further confirmed that South Africa has successfully made progress in shielding its stock market against financial crises in recent times. The discoveries held useful implications for South African stock portfolio managers small, mid and large cap indices on the JSE, holding all else constant. Their efficiency is studies over period 2008(year of the crisis) and another period where there is no crisis and they found that small cap stocks have a great degree of non-randomness in price movements and vice versa with low and mi. Many stocks were less efficient during the crisis but were not inefficient. du, T. E., ; Cuba, Y. Z. (J 2017) found that after the crisis there were regulations put in place to safeguards to the financial system, which of course contributed to additional costs in the banking sector. This study investigated the change in cost as well as efficiency in the profit in prior, during and post the financial crisis from year 2004 to 2013 in SA for banks listed on the Johannesburg Stock Exchange It further seeks to explain the relationship between the cost to income ratio) and the return on average assets as well as in relation to business cycles. It was also found a strong relationship existed between return on average assets and business cycles rather than with cost to income ratio and business cycles.

Toerien, F., Kruger, R., ; Rosenberg, D. (April 01, 2014). Even though the equity investment horizon needed for optimising the probability of yielding certain returns is of great interest to the investors, least research has been published globally about it. This journal, for the first time, used reverse statistics and derived probability distributions of the times required to achieve specific levels of returns on the Johannesburg stock exchange. To be specific, Toerien, F., Kruger, R., ; Rosenberg, D. considered the total returns of the All Share Index from the year 1995 to 2012. They showed that for matched pair target returns ranging from approximately 2% to approximately 8%, the highest likelihood of the negative return on a timeline lies to the left of the highest likelihood of the equivalent positive return. This gain-loss asymmetry is like that previously found for top world markets like the Dow Jones Index, but opposing that found for indices in Eastern Europe. Given that previous researchers associated this difference to a developed verses emerging market dichotomy, it could indicate that the Johannesburg stock exchange closely resembles developed equity market than a developing one
The aim of Seth, N., ; Sharma, A. K. (2015) was examining the informational efficiency and relationship of certain Asian and United States stock markets while considering the impact of recent financial crisis on them. Tests that were used included correlation coefficient, causality, runs test, test and cointergration. These markets are said to be inefficient in weak form and indeed thee was a positive relationship between Asia and the Us in the long term and inefficiency was not affected as their integration dampened the effect of the crisis of 2002
In Mouton, M., ; Smith, N. (October 01, 2016) it was found that the ideal capital structure and value of a company was changing all the time, with the taking internal and external environment taken into consideration. It examined company-related determinants of capital structure and investigated whether the 2008 financial crisis had any significant effect on the capital structure and the identified determinants in a sample of top 40 JSE Ltd listed companies in SA. They applied a panel regression model to identify the greatest capital structure determinants and variance in them. Panel regression accounted for cross-sectional data and time series data at the same time. It was found that the 2008 financial crisis did not have a big difference on the capital structures of the sampled companies. The greatest determinants of capital structure that were company related before the 2008 financial crisis were risk, tangibility and profitability. Risk and tangibility had the strongest effect after the financial crisis, but profitability became trivial. The significant factors should be closely monitored to detect change in capital structure and the valuation of a company
Thomson, R. J., ; Reddy, T. L. (January 01, 2013) added to prior work of authors to reconsider the real terms of capital-asset pricing model (CAPM) in SA. As, with the main question being “Can the CAPM be accepted in the South African market for the purposes of the stochastic modelling of investment returns in typical actuarial applications?” the CAPM suggested that the higher the expected return, the higher the risk which a positive relationship is

Comparing the JSE to Nigerian stock exchange as well as some other African markets, it was found that a study was interested in whether the NSE followed a random walk which is when the price of stock changes randomly based on all available information at that time, inclusive of previous year prices. The markov model was used to test for this and found that NSE didn’t follow a random walk process which means that there is no pattern to predict stock prices for tomorrow by using today’s prices
In 2016, Nkemnole, E found the Nigerian stock exchange to be weak market efficient which meant that changes in prices of stock is not immediately reflected on price of the stock as stated by weak-form of the EMH, investors shouldn’t be able to outperform the market continually through having a look at trends of past share prices or by formulating trading rules that are based on historic share returns. This paper investigated the lenght to which the equity prices of firms listed on the Nigerian Stock Exchange were consistent with the efficient market theory hypothesis. Particularly, the paper investigated the weak-form efficiency of the NSE using weekly returns for sixty-nine most actively traded shares in 1995 to 2005 and pointed put at the end it pointed out that indeed the NSE may be weak-form efficient which is not efficient as investors end up paying more than they should
Obrimah, O. A., Alabi, J., & Ugo-Harry, B. (January 01, 2015) found that the NSE capital pricing is characterised by market skewness and volatility, indicating this model was useful for the studies of semi-strong form efficiency of the Nigerian Stock Market. Their discovery was that capital pricing models mostly underestimated prices therefore is not an appropriate test for efficiency of the NSE whereas the capital pricing model was found to be an appropriate measure of efficiency in the Johannesburg stock exchange
In the year 2013, Nwosu, E. O., Orji, A. and Anagwu O conducted a study where they examined the weak form of market efficiency of 5 stock markets; 4 were from Africa and 1 was developed through the period 1998 to 2008. Results indicated that the African markets do not behave in a manner consistent with the weak form of market efficiency. These results provide a difference in the developing African markets and the developed markets. The study found that developing African markets had higher average returns and volatility compared to developed markets which makes sense because higher risk is associated with higher return. An argument was that in market become less volatile, they would attract more investment

One of the problems that the JSE faced and the solution to the problem can be found in the journal of Chitimira, H. (January 01, 2014) which said there was a high degree of market abuse at around the is a case in point. In SA, the Securities Services Act4, Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act were put in place to combat and reduce market abuse. Chitimira, H. provides an overview analysis of the effectiveness of regulatory framework of market abuse and investigates whether the regulatory framework has enhanced market integrity and public investor confidence in the SA markets by checking if the relevant legislations are being correctly exercised. This journal further discussed more ways in which market abuse can be improved. The forms of market abuse are insider trading, trade-based market manipulation and disclosure-based market manipulation, which are prohibited SA. Conclusion is that further efforts must be put in to fight market manipulation in south Africa
In 2014 again, Chitimira, H. analysed market abuse under the Financial Markets Act 19 of 2012 to investigate the effectiveness of the regulation in the fighting of market-abuse practices in South Africa. He provides an overall analysis of the market abuse offences as well as the punishment and other anti-market abuse-enforcement means which are employed under the Financial Markets. The study also gives an analysis to find the extent to which the regulatory framework has been
Chitimira, H. published another journal in 2014 with an objective of providing overall analyse of the difficulties faced in the current anti-market abuse-enforcement framework in relation to some selected specific aspects of the financial markets in SA. It was done to shed light to stakeholders about the available legislations and to determine whether legislations were effective in fulfilling. Lastly, the adequacy of the enforcement framework will be examined in relation to accounting standards
Chitimira, H. (January 01, 2015). Financial market manipulation did not only occur in SA but it’s something that happens globally. Australia faced market abuse in the past and has now also established a regulatory framework to mitigate or combat these unlawful practices, the article looks at the history of Australia in terms of market abuse practices and highlights available penalties and remedies for it. Lastly, possible recommendations and significant Australian anti-market abuse enforcement approaches that may also be used in South Africa and were stated. Gaps still exist in the fighting the manipulation of markets although SA has made some progress through implementation of legislations

To conclude this literature, the Johannesburg stock exchange has been quite efficient for a market in a developing country when compared to other developing countries and obviously its not as efficient as a developed country

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