• Morotola Pholohane Vunani Fund Managers
  • Oluseye Ajuwon University of Lagos
  • Nicolene Wesson University of Stellenbosch Business School


This study explored the price reactions of shares moving in and out of Johannesburg Stock Exchange (JSE) Top 40 Index by applying three models to calculate the abnormal returns of the stocks; namely: the market model, the Capital Asset Pricing Model (CAPM) using leveraged betas and CAPM using unleveraged betas. An event study methodology was used to measure the abnormal returns around the event date windows. The average abnormal returns (AARs) and cumulative average abnormal returns (CAARs) were tested for statistical significance for various windows. The three models used show increasing (decreasing) CAARs for additions (deletions) when examined over the longer-term windows; however, CAARs showed mixed results for short-term cumulative windows. The study found price reversal for stock prices over the longer-term horizon for prior and post events. The stock price AARs for the pre-announcement date were found to be significant for the stocks to be deleted from the index, but not statistically significant for additions. There were higher asymmetric abnormal average returns for the deletions and additions when using the market model approach. The study further found that the deletion from the index and addition to the index experienced positive and negative AARs respectively on a change day of the event. This implies that it is possible to earn average abnormal returns. However, such anomalies should disappear if the market becomes more efficient.

Author Biographies

Morotola Pholohane, Vunani Fund Managers

Morotola C. Pholohane obtained her first degree in Computer Science and Statistics from the University of Limpopo, B.Com from the University of Cape Town, South Africa, and Master in Business Administration from the University of Stellenbosch Business School, Cape Town. She is currently working with Vunani Fund Managers, as their Portfolio Manager of Absolute Return. She is also a Chartered Alternative Investment Analyst

Oluseye Ajuwon, University of Lagos

Oluseye S. Ajuwon holds a PhD in Development Finance from the University of Stellenbosch Business School. M.Sc. and M.Phil. in Economics from the University of Ibadan, Nigeria. Currently an Economics Lecturer at the University of Lagos, Nigeria, and an Associate Lecturer of Microfinance and, MPhil Supervisor, Development Finance, University of Stellenbosch Business School, South Africa

Nicolene Wesson, University of Stellenbosch Business School

NICOLENE WESSON is a professor of Management Accounting (with the focus on evaluating annual reports) at the University of Stellenbosch Business School. Her research interests include share repurchases, dividends, directors' remuneration, cash flow statements, value-added statements, auditors' remuneration and taxation. Prof Wesson is a chartered accountant (CA(SA)) with a Master’s degree in Taxation and a PhD in Finance, both from Stellenbosch University