Revisiting the relationship between different financial risk measures and the market return on ordinary shares in South Africa

Abstract

The main aim of this study was to test whether there is a positive relationship between different financial risk measures and the expected return of a share. This study was performed in 1995 by Brümmer and Wolmarans, who obtained results contrary to those of a similar study in the United States of America in 1988. The reasons for the difference were not established. This study follows up the one by Brümmer and Wolmarans to determine whether the passing of 19 years could have brought about any difference in the results. This process was initiated by testing a set of variables from a sample size of 107 JSE-listed companies from 2002 to 2012 for linearity. As there was no such linear relationship between any of the variables, no assumptions can be made about any relationship between share return and the risk measures tested here. If investors were risk averse, one would expect a positive relationship between different financial risk measures and the expected return of a share. This is not the case in the South African market.