Abstract:
The objective of this research paper was to examine the possibility of active investment out-performing the passive investment by using a combination-based investment style for an extensive period. The combination-based style included financial-ratio-based style, market-based style and behavioural-finance-based style in the Johannesburg Stock Exchange during the period from 1984 to 2014. The four-dimension optimisation exercise based on the combination-based style was done in the in-sampling period and the result was tested in the out-of-sample period. The results have confirmed that the combination-based style out-performed the benchmark by 13% per annum over a 14 year period, which suggested that active managers could out-perform passive investment. The out-performance could further improve by recalibrating the optimisation exercise throughout the out-of-sample period to ensure the investment style learns from and incorporates with new data.
