Window-Dressing - Why the Market Rallies at Quarter End
3 July 2018 | SA Views | Joani van Wyk

We are officially halfway through 2018 and it’s a good time to reflect and look at what’s happened so far this year. We compared the performance of the 100 largest shares on the JSE over different time periods and summarised the worst and best performers in the two tables below.

Immediately we can note the 3.5% jump the Top40 Index experienced on 29 June, which accounted for all of the month’s 3.6% return. It was also the last trading day of the second quarter and the rampant one-day rally improved the picture substantially for those three months, returning 6.2% instead of 2.7%. The improvement was felt across the board with most shares posting a strong final day of the quarter. It may seem like an odd coincidence that the last day of the quarter sees this anomaly, but those in the asset management industry are well aware of this occurrence near quarter end. The phenomenon is called ’Window Dressing’ where fund managers change their positions and ’dress’ their funds to look more attractive at the end of a quarter (usually the period for reporting to clients). They may also try to increase the value of their funds in order to gain the maximum possible management fee (in cases where monthly or quarterly values are used to calculate the fee). The result is substantial buying support in the market which pushes up share prices.

From the 100 largest ALSI shares, 90% of the shares showed an increased price from 28 to 29 June’18 and the average increase in total return for the quarter was 2.24% when using the alternative quarter end dates. EXX showed the largest improvement between these two dates of 8.3%.

(Click image to enlarge)image1

Source: Bloomberg

When comparing the number of shares that showed positive total returns and negative total returns within each time period, the chart below shows that in each of the time periods covered, the proportion of negative performing stocks outweighed the proportion of positive performing stocks. Also, the number of positive performing companies decreased with each time period.


Source: Bloomberg

If you are as intrigued by this as much as we are, contact our dealing desk today to get your hands on the full list!



Joani van Wyk

Joani van Wyk joined the asset management team in January 2017, responsible for quantitative research of equities across all industries. Joani completed her degree in Mathematical Science in 2015, as well as an Honours degree in Financial Risk Management in 2016, both at the University of Stellenbosch. She is currently a CFA candidate.

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