Analysis of the Lead-Lag Relationship on South Africa capital market

Abstract

Despite the efficient market hypothesis (EHM), lead-lag relationships can be observed mainly between financial derivatives and underlying asset prices, prices of large and small companies, etc. In our paper, we examined the lead- lag relationship between prices of open ended funds and an all-share index as a representative of the capital market. Along with more traditional methods of using cross correlations, partial correlation and Toda-Yamamoto causality tests, we also analysed the speed of adjustment of assets to their intrinsic values and identified the most prevalent lag using rolling time windows. The analysis was performed using data from the South Africa capital market