Gopane, Thabo J.; Ra hu a, Mukundi
A icle
Con as ing he pe o mance o ac i e and passi e uni
us s unde no mal ma ke condi ions: Is he expe ience
o eme ging ma ke s di e en ?
O ganiza ions and Ma ke s in Eme ging Economies
P o ided in Coope a ion wi h:
Facul y o Economics and Business Adminis a ion, Vilnius Uni e si y
Sugges ed Ci a ion: Gopane, Thabo J.; Ra hu a, Mukundi (2024) : Con as ing he pe o mance o
ac i e and passi e uni us s unde no mal ma ke condi ions: Is he expe ience o eme ging
ma ke s di e en ?, O ganiza ions and Ma ke s in Eme ging Economies, ISSN 2345-0037, Vilnius
Uni e si y P ess, Vilnius, Vol. 15, Iss. 1, pp. 188-208,
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2024, ol. 15, no. 1(30), pp. 188–208 DOI: h ps://doi.o g/10.15388/omee.2024.15.10
Con as ing he Pe o mance o Ac i e and
Passi e Uni T us s unde No mal Ma ke
Condi ions: Is he Expe ience o Eme ging
Ma ke s Di e en ?
Thabo J. Gopane (co esponding au ho )
Uni e si y o Johannesbu g, Depa men o Finance and In es men Managemen , Sou h A ica
[email protected]
h ps://o cid.o g/0000-0002-4182-7149
Mukundi Ra hu a
Uni e si y o Johannesbu g, Depa men o Finance and In es men Managemen , Sou h A ica
201306262@s uden .uj.ac.za
Abs ac . The p edominan adi ion in he li e a u e is o sc u inise he compe i i e pe o mance o
passi e and ac i e in es men s a egies wi h less ega d o he p e ailing ma ke clima e. The hesis
o his pape is ha ola ile ma ke condi ions may necessi a e in es men s a egy adjus men s. Such
eadjus men s may con ound empi ical compa ison o passi e and ac i e in es ing i econome ic models
do no adap acco dingly. Cu en ly, he li e a u e canno gi e a s ylised ac o whe he he his o ical
claims o passi e–ac i e ela ionships ela e o no mal ma ke condi ions o no , which is a law. The
p esen s udy educes he lagged knowledge gap by answe ing he ques ion whe he passi e in es men
ou pe o ms ac i e in es ing unde no mal ma ke condi ions. The s udy applies he pa ame ic and
non-pa ame ic isk-adjus ed models o he Jensen alpha and Sha pe index. The empi ical analysis is
based on he weekly e u ns o 16 uni us s lis ed on Sou h A ica’s Johannesbu g S ock Exchange o
en yea s (be ween 2009 and 2019). Consis en wi h he hypo hesis o ine icien capi al ma ke s in
de eloping economies, he s udy inds ha ac i e in es ing signi ican ly ou pe o ms passi e in es men
s a egy unde no mal ma ke condi ions. The esul s should bene i in es o s and policymake s in he
e a o inc easing compe i i eness, digi alisa ion, and globalisa ion.
Keywo ds: ma ke condi ions, passi e in es ing, ac i e in es ing, po olio pe o mance, uni us s
Recei ed: 18/1/2023. Accep ed: 27/2/2024
Copy igh © 2024 Thabo J. Gopane, Mukundi Ra hu a. Published by Vilnius Uni e si y P ess. This is an Open Access a icle
dis ibu ed unde he e ms o he C ea i e Commons A ibu ion Licence, which pe mi s un es ic ed use, dis ibu ion, and
ep oduc ion in any medium, p o ided he o iginal au ho and sou ce a e c edi ed.
Con en s lis s a ailable a Vilnius Uni e si y P ess
189
Thabo J. Gopane, Mukundi Ra hu a. Con as ing he Pe o mance o Ac i e and
Passi e Uni T us s unde No mal Ma ke Condi ions: Is he Expe ience o Eme ging Ma ke s Di e en ?
1. In oduc ion
The p emise o his pape is ha sus ained u bulen ma ke condi ions may demand
s a egic in es men adap a ion o p ese e op imal po olio alloca ions. The p edomi-
nan li e a u e adi ion is o con as he pe o mance o passi e e sus ac i e in es ing
wi h less ega d o he p e ailing ma ke condi ions excep a ew ha end o emphasise
bea and bull ma ke s (Pa ami a e al., 2017; Gopane e al., 2023). The objec i e o
he cu en s udy is o answe he ques ion: Does passi e in es ing ou pe o m ac i e
in es ing unde no mal ma ke condi ions?
The deba e o passi e e sus ac i e in es ing has gained momen um since he eme -
gence o he po olio measu e o alpha (Jensen, 1968). I con inues o be a opical sub-
jec in inancial ma ke s wi h di e se isk implica ions o in es o s. Legal p ac i ione s
concu (Willis & Chung, 2022, p.13). In a ecen UK case (Insu ance G oup RSA)
conce ning passi e and ac i e in es ing, he cou pe mi ed he claiman (o in es o
ac ion g oup) “ o adduce expe e idence.” In suppo o he uling, Willis and Chung
(2022, p.13) asse : “We conside his o be a s ep in he igh di ec ion … in ou iew
[Sec ions 90 and 90A], should include ac i e in es o s as well as so-called passi e o
acke unds.” O he s yle- ela ed ques ions end o puzzle in es men decisions, like
whe he passi e o ac i e in es ing is a be e ma ch o e i emen schemes (Gonzalez
e al., 2020) and whe he passi e o ac i e in es ing enables be e compliance wi h
he iducia y du y o p udence (FDP) o und manage s. The FDP obliga ion ends o
compound li iga ion isks o und manage s like he memo able U.S. cases conce ning
passi e e sus ac i e in es ing, Bell s An hem and B o he son s Pu nam ( e iewed by
Ha mon and Fishe , 2019).
Asse managemen o collec i e in es men schemes (CIS) in gene al (including
he Sou h A ican uni us sec o ) is a signi ican global indus y and p o ides alua-
ble long- e m in es men oppo uni ies. The i s uni us in Sou h A ica, Sage Fund,
was ins alled in 1965, wi h USD 32,250 asse s unde managemen , and i s ill exis s
oday. Since hen, he Sou h A ican uni us sec o had achie ed USD181 billion in
asse s unde managemen a he end o Sep embe 2023 (ASISA, 2023a).
In p inciple, und manage s pu sue he business objec i e and iducia y esponsibil-
i y o maximising clien (in es o ) e u ns. To do so, while asse manage s may con ig-
u e a ious in es men s a egies, he ques ion always emains: is he po olio passi e,
ac i e in es ing, o some hing in he middle (like co e-sa elli e) in es ing? The la e is
explained comp ehensi ely elsewhe e (Monga e al., 2022), and he cu en esea ch
ocuses on passi e e sus ac i e in es men s yles.
Passi e in es ing ollows a long- e m buy-and-hold s a egy based on he a ionale
ha he inancial ma ke s a e e icien enough o discou age s ock-picking e o s. P e-
dominan ly passi e in es ing aims o mimic he pe o mance o epu able s ock ma ke
indices, like he S&P500 in he Uni ed S a es, he FTSE100 in he Uni ed Kingdom, o
he JSE ALSI in Sou h A ica, in e alia. Acco dingly, passi e in es ing is also known as
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an index acke . The disad an age o acking he ma ke benchma k is ha when he
index alls, passi e in es o s go down wi h i (like in he do .com bubble). In con as ,
ac i e in es ing main ains an in es men philosophy ha i is possible o ea n excess
p o i s h ough ma ke iming and skilled analysis o undamen al alue d i e s, among
o he s. Acco dingly, ac i e in es ing ends o be mo e expensi e due o he necessa y
analy ical wo k. The e o e, in es o s should p e e ac i e in es ing o e passi e only i
he p o i s jus i y he cos , o he hings equal.
Many s udies sus ain he deba e on he compa a i e pe o mance o passi e and ac-
i e in es ing (see Jones & We me s, 2011; C eme s e al., 2019; Millo e al., 2023).
The ou come o such analysis is impo an as i builds he ounda ions o s ylised ac s
(gene alisa ion) in he passi e–ac i e in es men choice. Howe e , he e is a common
analy ical weakness in mos o he passi e–ac i e li e a u e in ha hey p edomina ely
neglec o accoun o he p e ailing ma ke condi ions. A se o s udies ha a e closes
o he cu en s udy a e hose ha examine po olio pe o mance in he und manage-
men indus y hough hey do no pu sue he passi e–ac i e deba e (like Kaushik e
al., 2010; Be olis & Hayes, 2014; Male o e al., 2016). Ano he weakness is ha he
li e a u e s eam examining ma ke egimes (see Kole & Van Dijk, 2017) and s udies
on he passi e–ac i e deba e end o pu sue hei in es iga ions on a pa allel basis. The
p oblem wi h dis ega ding ma ke condi ions is ha di e en ma ke clima es, such as
bea , bull, o no mal ma ke condi ions, a e now assumed o impac bo h passi e and
ac i e in es ing uni o mly. The p esen s udy con ibu es owa ds co ec ing he li e a-
u e weakness in h ee ways.
Fi s , he p ima y con ibu ion o he s udy is o examine he ques ion o whe h-
e passi e in es ing ou pe o ms ac i e in es ing unde no mal ma ke condi ions in
eme ging ma ke s, aking Sou h A ica as a case s udy. In his ega d, no mal ma ke
condi ions a e easonably sus ained ime in e als when no signi ican p ice luc ua ions
o s uc u al changes emana e om unexpec ed e en s like he global inancial ma ke
c isis, he COVID-19 pandemic, o geopoli ical ensions like he Russia–Uk aine wa s.
Such majo ma ke shocks end o igge d as ic policy esponses like cen al banks
implemen ing ex ao dina y con ols on ma ke liquidi y, among o he s. Second, he
s udy con ibu es knowledge ega ding in es men s yles in eme ging ma ke s. Thi d,
he s udy con ibu es knowledge ega ding inancial ma ke e iciency in eme ging
ma ke s. The es o he pape is o ganised as ollows: Sec ion 2 p esen s a li e a u e
e iew o he passi e–ac i e deba e, Sec ion 3 discusses he me hodology employed o
compa a i e pe o mance analysis, Sec ion 4 p esen s he esul s and discussion, and
Sec ion 5 concludes he s udy.
2. Li e a u e Re iew
The pe o mance o ac i e and passi e po olio managemen emains an a ea o in e -
es among academics and inancial p ac i ione s wi h po en ial spillo e s in non-bank
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Thabo J. Gopane, Mukundi Ra hu a. Con as ing he Pe o mance o Ac i e and
Passi e Uni T us s unde No mal Ma ke Condi ions: Is he Expe ience o Eme ging Ma ke s Di e en ?
inancial in e media ion (Cha i, 2023) and gene al mac oeconomy (Sch o h, 2021).
In eme ging ma ke s like Sou h A ica, he e has been easonable g ow h in und man-
agemen esea ch bu less so in he sub- heme o in es men s a egies. This sec ion
ou lines he heo e ical backg ound unde pinning he passi e–ac i e in es ing deba e
and hen scans he p e ailing empi ical s udies. The heo e ical amewo k includes he
e icien ma ke hypo hesis, which suppo s passi e in es ing, and beha iou al inance,
which p o ides some a ionale behind he ac i e in es men s a egy.
2.1 E icien Ma ke Hypo hesis and In es men S a egies
The e icien ma ke hypo hesis (EMH) is a heo y spea headed by Eugen Fama, a No-
bel lau ea e in economics science (Fama, 1969, 1970, 1991, 1998). The heo y is amed
on he p emise ha in an e icien ma ke , in es o s should no be able o consis en ly
make abno mal e u ns abo e equilib ium ma ke e u ns. The hinking is ha secu i y
p ices should ully e lec all a ailable in o ma ion imeously. In his ega d, he scope o
EMH encapsula es pas ading in o ma ion (called he weak o m), he i m’s inancial
and/o mac oeconomic in o ma ion (semi-s ong), as well as p i a e in o ma ion ( he
s ong o m). Addi ionally, EMH assumes ha in es o s a e a ional alue op imise s
who exhibi isk-minimising and e u n-maximising beha iou s.
Fu he , EMH expec s secu i y ma ke s o main ain equilib iums wi h immedia e
p ice adjus men s in esponse o new in o ma ion. Consequen ly, EMH is consis en
wi h an in es men s a egy o buy and hold, o index acking, known as he passi e in-
es ing s yle. Howe e , o e he yea s, EMH was subjec ed o in ensi e empi ical sc u-
iny, which ques ioned i s obus ness in explaining he obse ed ailu es in some o i s
p edic ions, he EMH anomalies, like pos -ea ning-announcemen d i . An ex ensi e
popula ion o anomalies is e iewed comp ehensi ely elsewhe e (Goodell e al., 2023).
Ac ually, he ise o EMH anomalies compounded doub s abou EMH eali ies, leading
o an inc ease in ma ke iming o s ock-picking ac i i ies, meaning an ac i e in es ing
s yle. An e o o explain he anomaly puzzles pa ed he way o he eme gence o com-
pe ing al e na i e EMH heo ies.
2.2 Beha iou al Finance and In es men S a egies
The eme gence o Beha iou al Finance heo y (BFT) is ancho ed on he wo ks o cog-
ni i e psychologis s (Kahneman & T e sky, 1972, 1973, 1979) bu e angelised in he
inance discipline by Thale (1999) wi h p ominen backup om o he p oponen s
(Shille , 2003) esponding o he puzzles o EMH anomalies. Acco ding o BFT, wha
is seen as an anomaly is ac ually he eali y o he in es o s’ decision-making p ocess,
which is in luenced by na u al human biases and psychological ac o s like conse a-
ism, decision aming, men al accoun ing, and eg e a oidance, o men ion a ew. BFT
and ac i e in es ing a e co ela ed. Fo ins ance, ac i e in es o s may decide o adop
con a ian o momen um s a egies wi h a iew ha he ma ke s o en o e shoo o
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unde eac in esponse o new in o ma ion. Unlike EMH, in he BFT wo ld, he a ion-
ali y assump ion is elaxed, and he a o esaid in es men choices a e deemed no mal
in es men p ac ice.
2.3 O he EMH Al e na i es and In es men S a egies
While EMH and BFT a e wo pola pe spec i es o explain in es o beha iou , se e al
hypo heses and ex ensions exis be ween hem. Wha seems o econcile EMH Al e -
na i es (EMH-A) is hei co diali y o accep ha inancial ma ke s possess some le -
el o e iciency, leading o ading possibili ies o ha d- o-ge bu achie able abno mal
p o i s. Mo e impo an ly, since EMH-A elax some o EMH assump ions, hey pu sue
he goal o jus i ying EMH anomalies and implici ly explaining (in pa ) he p esence
o ac i e in es ing. Fo example, he F ac al Ma ke Hypo hesis by Pe e s (1994) says
ha in es o s a e ac al (di e ) acco ding o hei p e e ed in es men ho izons such
ha , in con as o EMH, ma ke pa e ns like ends, e e sals, and ola ili y clus e -
ing a e no mal, which is consis en wi h ac i e in es men s a egy. Nex , he Adap i e
Ma ke Hypo hesis by Lo (2004) says ha in es o s lea n om pas expe iences and
adap o changing ma ke condi ions. Al hough he EMH-A end o p edic ac i e in-
es ing mo e han passi e, hey also ecognise ha abno mal p o i s a e no easy o ind,
and he e a e cons ain s like limi s o a bi age. Nume ous o he EMH al e na i es a e
explained sys ema ically elsewhe e (Nyaku ukwa & See ha am, 2023).
2.4 Global Empi ical E idence
In ecen imes, inancial ma ke s ha e obse ed a eju ena ed ise in passi e in es -
ing globally, especially in de eloped coun ies (Cha i, 2023). This end is consis en
wi h he iew ha ac i e in es ing does no ou pe o m passi e in es ing due o i s ex-
pensi eness and limi a ions in inding skilled manage s (see Millo e al., 2023). Fo a
while, Sha pe (1991) a gued in luen ially ha ac i e in es ing is a hopeless ze o-sum
game whe e p o i s o winne s and lose s agg ega e o ze o. The li e a u e has shown
ha he p oposi ion is no wa e igh enough o su i e c i ical con on a ion (Wa -
en, 2020) and is inconsis en wi h empi ical indings (Be k & Van Binsbe gen, 2016),
which show ha agg ega e und manage s in he op CIS ma ke o he U.S expe ience
an abo e-benchma k g oss- alue-add ha is g ea e han ze o. Wi h he Sha pe (1991)
p oposi ion neu alised, he esea ch on he passi e–ac i e deba e con inues unhin-
de ed.
Bal ussen e al. (2022) examined a la ge uni e se o Eu opean c oss-bo de unds
o 13 yea s (2008 o 2020) domiciled in I eland and Luxembou g and ound no ac i e
ou pe o mance, con adic ing Dong and Doukas (2020), who looked a non-c oss-
bo de Eu opean unds and ound a ou able esul s o ac i e in es ing. Geh inge and
Lehmann (2023) econside ed a sample o 200 la ge es ablished ixed-income unds
ac oss Eu ope wi h a o al alue o EUR 900 million o en yea s (2010 o 2020) and
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Thabo J. Gopane, Mukundi Ra hu a. Con as ing he Pe o mance o Ac i e and
Passi e Uni T us s unde No mal Ma ke Condi ions: Is he Expe ience o Eme ging Ma ke s Di e en ?
ound a ou able esul s o ac i e in es ing. Based on hese ex ensi e Eu opean s ud-
ies, one can obse e a pa e n o inconsis en esul s o and agains ac i e in es ing.
Rega ding a wo ldwide s udy, Leippold and Rueegg (2020) u ilised he en i e Mo n-
ing S a CIS da abase, o he global und managemen indus y, including he op wo
CIS loca ions, Eu ope and No h Ame ica. They analysed 60,000 po olios wi h a o al
asse unde managemen o USD17.8 illion o passi e and ac i e in es ing o e 26
yea s (1991 o 2016) and ound un a ou able esul s o ac i e in es ing. The e o e,
global CIS e idence seems o sugges ha ac i e in es ing ails o pe o m o i s p om-
ise and canno jus i y he expensi e ees. Howe e , he abo e obse a ions a e no as
wa e igh as hey seem since hey ha e been challenged on se e al g ounds. Fi s , some
passi e unds a e close ac i e in es ing and i discoun ed, ac i e ou pe o mance may
eme ge (C eme s & Pe ajis o, 2009).
Second, some pe o mance measu es may ha e inhe en laws. Fo ins ance, Be k
and Van Binsbe gen (2015, 2016) used a me hod ha looks a agg ega e ma ke s (no
pe und) and ound a ou able esul s o ac i e in es ing. Thi d, he old in o ma ion
pa adox is s ill applicable in ha , o passi e in es ing o exis , ma ke e iciency is nec-
essa y, and he ma ke s become e icien h ough ac i e in es ing. This means passi e
in es ing is ee iding (Leippold & Rueegg, 2020) on ac i e in es o s’ ha d labou
(C eme s e al., 2019; Buehlmaie & Wong, 2020). Howe e , economic in ui ion al-
lows o con adic o y esul s in eme ging ma ke s, as e idenced by Dyck e al. (2013)
and Abdullah and Sha i (2019). Wa en (2020) lis s se e al easons why he de eloped
ma ke s’ lessons o ac i e-in es ing unde pe o mance may no be a globally gene alis-
able inding. Excep ions include loca ions whe e ma ke s a e less compe i i e and ine -
icien , like eme ging ma ke s.
2.5 Eme ging Ma ke s and he Sou h A ican Expe ience
In Sou h A ica, pape s ha a e closes o he cu en s udy a e Be olis and Hayes
(2014), Male o e al. (2016), and Kunjal e al. (2021), who accoun o economic con-
di ions in hei examina ion o whe he und manage s ou pe o m he benchma k.
Be olis and Hayes (2014) examined sub-samples acco ding o he economic s a es o
he down u n, a e age g ow h, and obus expansion and ound posi i e esul s du ing
economic expansion and inconclusi e in he es . Male o e al. (2016, p. 188) sepa a ed
sub-samples acco ding o be o e and a e ma ke c ises (global inancial c isis, along
wi h Eu opean deb c isis) and ound ha : “majo i y o he uni us manage s show
good pe o mance be o e he c isis, wi h subsequen in e io i y in … u bulen imes”.
Kunjal e al. (2021) examined he pe o mance o passi ely managed unds ( acking
abili y) in Sou h A ica du ing bea and bull ma ke egimes and ound posi i e esul s
du ing he bull bu no du ing he bea cycle. These s udies a e help ul o es ablish
whe he i is necessa y o accoun o ma ke condi ions in po olio pe o mance as-
sessmen . Howe e , hey a e no answe ing exac ly he same ques ion as he cu en
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s udy in ha hey do no se ou o con as he pe o mance o passi e and ac i e in-
es ing, bu hey a e sugges i e.
The e is a compelling case o why he pe o mance o passi e and ac i e in es ing in
de eloping ma ke s may yield con adic o y esul s o de eloped economies. In o ma-
ion heo y (Gâ leanu & Pede sen, 2018, 2022) and EMH (Fama, 1991, 1998) p edic
ha abno mal p o i s a e mo e likely i he inancial ma ke s a e ine icien , making i
mo e conduci e o ac i e in es ing. C oss-coun y esea ch (Dos San os e al., 2023;
De Ab eu e al., 2023) and special case s udies (Reddy & Dhabolka , 2020) show ha
eme ging ma ke s a e gene ally ine icien . Se e al s udies epo an unambiguous
ou pe o mance o ac i e in es ing o e he passi e s yle including e idence om 137
unds om 22 eme ging ma ke s (Huij & Pos , 2011) and o he s (Dyck e al., 2013;
Abdullah & Sha i, 2019). Rega ding he A ican ma ke s, a 30-yea li e a u e e iew
(Adeabah e al., 2023) shows ha many A ican s ock ma ke s a e ine icien , while
Sou h A ica is only weak- o m e icien . An empi ical ques ion ha a ises is how he
limi ed ma ke e iciency in Sou h A ica should impac he passi e-ac i e in es ing e-
la ionship. An empi ical conjec u e ollows.
P ima y Hypo hesis (H1): Passi e in es ing ou pe o ms ac i e in es men s a egies in he
Sou h A ican uni us sec o unde no mal ma ke condi ions.
Technology inno a ion, digi alisa ion, inc eased globalisa ion, and ma ke in eg a-
ion end o imp o e in o ma ion access and bene i ma ke e iciency which may ben-
e i bo h passi e and ac i e in es men s a egies (Lisauskiene & Da sku iene, 2021).
On he o he hand, he ex en o ma ke segmen a ion (Wa en, 2020) coupled wi h
semi- o m ine iciency may ad an age ac i e in es ing like o he eme ging ma ke s. Fo
ins ance, a e s udying 20 eme ging s ock ma ke s Bu e al. (2022, p. 502) conclude
ha “eme ging s ock ma ke s s ill o e ample oppo uni ies o bo h global and local
in es o s owa ds ac i e in es men s a egies.”
Seconda y Hypo hesis (H2): Passi e in es ing has equal pe o mance o he benchma k in he
Sou h A ican uni us sec o unde no mal ma ke condi ions.
Ano he Seconda y Hypo hesis (H3): Ac i e in es ing ou pe o ms he benchma k in he
Sou h A ican uni us sec o unde no mal ma ke condi ions.
Based on he con inued exponen ial g ow h o he Sou h A ican CIS ma ke , i is
a ional o expec und manage s o be compe i i e enough o equal o ou pe o m he
benchma k on a e age, especially in eme ging ma ke s, and his happens o be hei
business objec i e in line wi h H2 and H3. Howe e , he ex en o und manage s’ suc-
cess (i hey achie e i ) is an empi ical ques ion.
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Thabo J. Gopane, Mukundi Ra hu a. Con as ing he Pe o mance o Ac i e and
Passi e Uni T us s unde No mal Ma ke Condi ions: Is he Expe ience o Eme ging Ma ke s Di e en ?
3. Me hodology
3.1 Model Mo i a ion
Pede sen and Rudholm-Al in (2003) main ain ha he bes p ac ice pe o mance me -
ic should sa is y h ee condi ions: app op ia eness in cap u ing he undamen al ea-
u es o he e u n dis ibu ion, ounda ion in i s abili y o be suppo ed by economic
heo y, and inally, cla i y in i s in e p e a ion in simple e ms. In ou iew, Jensen’s al-
pha (Jensen, 1968) i s he ecommended s anda d. Along wi h i s es ablished heo y
o capi al asse p icing model (CAPM), i is also con enien o pas s udies-compa a-
bili y (see C eme s e al. 2019). Ne e heless, we also apply he Sha pe index (Sha pe,
1966) as an al e na i e c oss-checking me hod.
3.1.1 Absolu e Pe o mance Measu e: Jensen’s Alpha. Jensen’s alpha measu es he ex-
cess e u ns o a po olio o e and abo e he ma ke benchma k e u n. In his model,
a highe and posi i e alpha me ic indica es a supe io po olio pe o mance. Jensen’s
alpha (αρ) is explained in Equa ion (1).
𝛼𝛼� � 𝑅𝑅
����𝑅𝑅
�� � 𝛽𝛽��𝑅𝑅
��� 𝑅𝑅
����
(1)
In Equa ion (1), he a iable R is e u n, and he subsc ip s p, m, and iden i y po -
olio, ma ke index, and isk- ee a e, espec i ely. The be a (β) is he sys ema ic isk
quan i ied h ough Equa ion (2). The ba on op o he a iables signi ies uncondi ional
means. To in e p e Equa ion (1), when he po olio alpha is posi i e, hen he uni
us is said o ha e pe o med be e han he ma ke benchma k. A ze o indica es neu-
al pe o mance, while a nega i e alpha deno es he uni us ’s unde pe o mance o
he ma ke benchma k. To e alua e he po olio be a, we eg ess he po olio excess
e u n (Rp – R ) agains he ma ke excess e u n (Rm – R ) in Equa ion (2). The las
e m, ep is he eg ession e o .
𝑅𝑅�� � 𝑅𝑅�� � 𝛼𝛼�� 𝛽𝛽��𝑅𝑅�� � 𝑅𝑅���� ℯ��
(2)
3.1.2 Rela i e Pe o mance Measu e: he Sha pe Index. While p o iling c i ical am-
ilies o po olio pe o mance measu es (PM), Capo in e al. (2014, p. 936) ecall
ha “con en ional wisdom ells us a … ‘good’ PM mus be pe sis en o e ime”, and
ha “Sha pe (1966) a io is s ill conside ed as he e e ence PM”. The o iginal Sha pe
index is compu ed as a a io o he po olio’s excess e u n o i s s anda d de ia ion,
�𝑅𝑅
���𝑅𝑅
�� ��𝑉𝑉𝑉𝑉𝑉𝑉�𝑅𝑅�����.
. An upg ade on he o iginal o mula (Sha pe, 1994) is o al-
low he di e ence in he nume a o o a y and o accoun o he a iabili y o his
excess e u n. P ecisely, he imp o ed amewo k is p esen ed in Equa ion (3), and i
is applied in he cu en s udy. Al hough in his pape we main ain he o iginal Sha pe
heme o compu ing excess e u n o e he isk- ee a e, R , he new Sha pe meas-
u e pe mi s esea che s o speci y al e na i e benchma ks as app op ia e (like Sha pe,
1992). The ad an age o Equa ion (3) is ha i has a con enien es s a is ic by mul i-
202
ISSN 2029-4581 eISSN 2345-0037 O ganiza ions and Ma ke s in Eme ging Economies
Figu e 2
A Plo o he Sha pe Index o Passi e and Ac i e Po olios
No e. The g aphs p esen he Sou h A ican Uni T us s’ pe o mance unde no mal ma ke condi ions
based on he Sha pe index. The solid line shows ac i e unds, and he do ed line displays passi e unds.
4.2 Discussion
The p ima y esea ch ques ion o his s udy is whe he passi e in es men ou pe -
o ms ac i e in es men s a egy unde no mal ma ke condi ions in eme ging ma -
ke s (Sou h A ica). Ou esul s show ha unde such a calm ading clima e, ac i ely
managed unds ou pe o m passi e po olios. These esul s a e in andem wi h some
expe ience om o he eme ging economies like single coun y esea ch o Malaysia
(Abdullah & Sha i, 2019), a c oss-coun y in es iga ion o 22 eme ging ma ke s (Huij
& Pos , 2011), and a s udy o global eme ging ma ke s in he CEM Benchma king da-
abase (Dyck e al., 2013). The esul s a e consis en wi h he Sou h A ican li e a u e
s eam ha ocuses on a simila esea ch ques ion (in pa ) o whe he ac i e in es ing
ou pe o ms passi e and/o in es men benchma ks (Meye -P e o ius & Wolma ans,
2006; Hi schel & K ige, 2010; Kalima & Gopane, 2022), i espec i e o he p e ailing
ma ke en i onmen . Howe e , o he a icles in Sou h A ica ha e obse ed con a y
ou comes (Tan, 2015; Coe zee e al., 2018; Toe ien e al., 2022) o mixed esul s (Fox
& K ige, 2013).
Mos p io s udies ha e a common unexplained me hodological app oach o no ac-
coun ing o ma ke condi ions, esul ing in some implici assump ions: ha he chosen
sample is a easonable andom app oxima ion o eali y o bea , and bull ma ke swings
agg ega e ou wi hin he chosen s udy pe iods. Ou iew is ha unless he assump-
ion is econome ically con i med, hen i ough o be elaxed. A ew local pape s ha
203
Thabo J. Gopane, Mukundi Ra hu a. Con as ing he Pe o mance o Ac i e and
Passi e Uni T us s unde No mal Ma ke Condi ions: Is he Expe ience o Eme ging Ma ke s Di e en ?
con ol o economic condi ions o business cycles (Be olis & Hayes, 2014), inancial
c ises (Male o e al., 2016), and ma ke egimes (Kunjal e al., 2021) a e simila o he
cu en s udy by e alua ing he pe o mance o uni us agains he ma ke bench-
ma k bu di e because hey do no explici ly con as passi e and ac i e in es ing. The
gene al message om hese s udies is ha uni us manage s ou pe o m benchma k
du ing good economic imes, unde pe o m in ecessions, and yield mixed o incon-
clusi e esul s du ing no mal economic imes, whe eas he e e se ends o mani es
in de eloped coun ies (Kaushik e al., 2010). Al hough we di e in indings om he
las se o local s udies, he e is an ag eemen ha accoun ing o ma ke condi ions has
impo an empi ical and p ac ical implica ions.
5. Conclusion
This s udy examined he pe o mance o passi e and ac i e uni us s in he eme ging
ma ke o Sou h A ica unde no mal ma ke condi ions using he isk-adjus ed meas-
u es o Jensen’s alpha and he Sha pe index. Two insigh ul obse a ions eme ge om
he s udy. Fi s , passi e unds unde pe o m he benchma k. Al hough he explana ion
o why unde - o o e pe o mance exceeds he scope o his s udy, we o e some in u-
i ion as he numbe s alk. The passi e unds co-mo e wi h he benchma k bu oscilla e
deepe ( han he ma ke ) in o nega i e zones wi h only mild upside swings. This could
be due o indexing con igu a ion o s aigh acking e o , among o he hings. Second,
he esul s show ha ac i e unds ou pe o m bo h he benchma k and passi e po -
olios. Fu he esea ch is ecommended o use e alua ion measu es ha accoun o
asymme ic (downside and upside) e u ns pe o mance. The cu en s udy adds alue
o he opical deba e o passi e–ac i e in es ing and o he ela ed disciplines like he
economics o o . Fo example, in inance li iga ions ega ding us issues o iducia y
du y o p udence in asse managemen , a ull awa eness o passi e–ac i e con as s is
necessa y, including whe he he applicable s ylised ac s apply o no mal ma ke con-
di ions o no . The e is alue in an exclusi e ocus on gene al equi y unds (like he cu -
en s udy), bu he d awback is a es ic ed sample size. Fu u e esea ch can o e come
he limi a ion by mo e app op ia e econome ic modelling.
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Appendix
Table A1
Tes o S uc u al B eaks wi h Unknown B eak Da es o ALSI
Ho: No s uc u al b eak
Tes o Sample: S a is ic P- alue Decision
Sup emum Wald 1.9246 0.9336 Ho no ejec ed
A e age Wald 0.2756 0.9203 Ho no ejec ed
Exponen ial Wald 0.1531 0.9661 Ho no ejec ed
Sup emum Likelihood Ra io 1.9511 0.9291 Ho no ejec ed
A e age Likelihood Ra io 0.2806 0.9158 Ho no ejec ed
Exponen ial Likelihood Ra io 0.1561 0.96 Ho no ejec ed
No e. Sample: Decembe 9, 2011 and Oc obe 3, 2014. Sou ce: Au ho s’ compu a ion.
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Passi e Uni T us s unde No mal Ma ke Condi ions: Is he Expe ience o Eme ging Ma ke s Di e en ?
Table A2
BDS Tes o ALSI
Dimension BDS S a S d. E o z-S a P ob.
2 -0.006 0.006 -1.060 0.289
3 -0.007 0.009 -0.757 0.449
4 0.006 0.011 0.563 0.573
5 0.010 0.011 0.890 0.373
6 0.012 0.011 1.123 0.261
No e. Sample: 12/09/2011 and 10/03/2014. Sou ce: Au ho s’ compu a ion.
Figu e A1
CUSUM Tes o JSE Allsha e Index (ALSI)
No e. The shaded a ea is he con idence bands o 99% a ound he null. Since he g aphical line o
ALSI does no b eak ou side he con idence in e al (shaded a ea), he e is e idence o no s uc u al
b eak a 1% le el. Sou ce: Au ho s’ g aphics.
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ISSN 2029-4581 eISSN 2345-0037 O ganiza ions and Ma ke s in Eme ging Economies
Figu e A2
S anda d S a is ical G aphs o Diagnose No mal Dis ibu ion
No e. In Panel A (quan iles o ALSI agains quan iles o no mal dis ibu ion), since he do ed line
does no de ia e much om he s aigh line, hen his is easonable e idence o no mali y. In Panel
B, since he ke nel densi y es ima e o ALSI does no de ia e much om he heo e ical bell shape o
no mal dis ibu ion, his is easonable e idence o no mali y. Sou ce: Au ho s’ g aphics.
