The characteristics and performance of concept stocks on the Johannesburg Securities Exchange

Abstract

The backdrop to this study is derived from an international paper which analysed the characteristics and performance of concept stocks across different North American stock exchanges. The empirical findings indicated that concept stocks underperform the market as well as control stocks. Concept stocks were also found to exhibit abnormally high levels of research and development spending. This study replicates the North American research in the South African setting by analysing the characteristics and performance of concept stocks on the Johannesburg Securities Exchange. The method used analyses a number of the characteristics of the stocks based on financial indices. Their performance is measured using the buy-and-hold abnormal returns method. The results indicated that the concept stocks outperformed their control stocks on certain accounting characteristics, but underperformed on others. The returns generated by the concept stocks significantly underperformed the control stocks, but only in Years 3, 4 and 5. The concept stocks are therefore only accurately valued over the long term.