Original Research

Market timing using derivatives on the Johannesburg Stock Exchange during bear periods

Marc Dumont De Chassart, Colin Firer, Wendy Grantham, Simon Hill, Mark Pryce, Ian Rudden
South African Journal of Business Management | Vol 31, No 4 | a746 | DOI: https://doi.org/10.4102/sajbm.v31i4.746 | © 2018 Marc Dumont De Chassart, Colin Firer, Wendy Grantham, Simon Hill, Mark Pryce, Ian Rudden | This work is licensed under CC Attribution 4.0
Submitted: 12 October 2018 | Published: 31 December 2000

About the author(s)

Marc Dumont De Chassart, School of Management Studies, University of Cape Town, South Africa
Colin Firer, School of Management Studies, University of Cape Town, South Africa
Wendy Grantham, School of Management Studies, University of Cape Town, South Africa
Simon Hill, School of Management Studies, University of Cape Town, South Africa
Mark Pryce, School of Management Studies, University of Cape Town, South Africa
Ian Rudden, School of Management Studies, University of Cape Town, South Africa

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Abstract

The objective of the study was to investigate the gains from market timing strategies using derivatives during a period when the return on the market was below that of the risk-free asset (a so-called bear period). It was found that perfect timers appear to do better under bullish rather than bearish markets. However, in a bear period, substantially lower predictive accuracies were needed to beat a buy and hold strategy when timing strategies using call options and holding cash (bull timing) were used compared to the strategy of holding the market and buying puts (bear timing) ahead of anticipated poor periods. Finally both the strategies of holding cash and buying a call in every period (market speculation) as well as of holding the market and buying a put in every period (portfolio insurance) out-performed a buy and hold strategy.

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