A case study of arbitrage opportunities and efficiency of the JSE

Abstract

This dissertation examines the market efficiency and arbitrage opportunities between 04 January 2000 and 31 December 2015 on selected JSE-listed stocks and equity indices. To assess market efficiency, four tests were performed namely: structural breaks, stationarity, independence and normality. Lastly, the Pairs trading strategy was implemented to examine arbitrage opportunities profitability, after considering trading costs. The results showed that most stocks and indices are in support of the Adaptive Market Hypothesis (AMH) theory. Arbitrage opportunities do appear and disappear over time, and the Pairs trading strategy performance varies with time but overall profitable.