Establishing The Relative Competitiveness Of South African Banking Shares: A Kalman Filter Approach

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Chris van Heerden
Gary van Vuuren


Kalman Filter, Omega Ratio, Sharpe Ratio, South African Banks


It is argued that the Basel III Accord will undermine the ROE of South African banks, and with the downgrading of South African banks during August 2014, will force investors to revaluate South African banking shares as attractive investment options. However, results from the Sharpe and Omega ratios, based on returns forecast using the Kalman filter, accentuate the likelihood that the South African industry can still be expected to be a competitive and feasible investment option after the downgrade. Evidence suggests that Capitec Bank Holdings Limited and Standard Bank Group Limited will perform the worst of all the South African banks, whereas FirstRand Limited, Investec Limited, and Barclays African Group will exhibit more promise in the future, outperforming world indices, such as the DAX, FTSE 100 and the S&P 500.


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