Comments on: Gold shares or krugerrands - Which is the better investment?

Addleson, M. Article Comments on: Gold shares or krugerrands - Which is the better investment? South African Journal of Business Management Provided in Cooperation with: University of Stellenbosch Business School (USB), Bellville, South Africa Suggested Citation: Addleson, M. (1986) : Comments on: Gold shares or krugerrands - Which is the better investment?, South African Journal of Business Management, ISSN 2078-5976, African Online Scientific Information Systems (AOSIS), Cape Town, Vol. 17, Iss. 2, pp. 117-, https://doi.org/10.4102/sajbm.v17i2.1043 This Version is available at: https://hdl.handle.net/10419/217930 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ s. Afr. J. Bus. Mgmt. 1986, 17(2) Letters Comments on: Gold shares or krugerrands - which is the better investment? The above-mentioned article involves the application of a standard portfolio selection model to data on gold-share and krugerrand prices as well as yields on treasury bills (S. Afr. J. Bus. Mgmt. 17: 1 - 00). The data cover a period of three years (May 1980-April 1983). The purpose is to determine whether over this period an 'efficient (gold) portfolio' would have included krugerrands. The title of the article is misleading in that the evidence presented does not, and cannot, form a basis for ex-ante forecasts of efficient portfolios. At most the study provides insight into the relative performances of different assets over a limited period in the past. It offers a view on the much more restricted question of what would have been the better investment. The study is technically competent, yet it only amounts to an application of a relatively simple model and does not offer any insights into the nature of the markets involved. No attempt is made to generalize about the implications -perhaps wisely in view of the limited scope -but, in this sense, it does not represent a contribution to knowledge in the area of portfolio selection. The fact that gold-related assets are involved does not disguise the nature of the exercise. M. ADDLESON Graduate School of Business Administration, University of the Witwatersrand, P.O. Box 3JJ70, Braamfontein, 2017. November 1985 Authors' response The major criticism of the article concerns the fact that the analysis is an ex-post study. It is correctly pointed out that 117 investors make ex-ante decisions and thus one has to be cautious in making conclusions about ex-ante behaviour on tl.ie basis ~f ~-post results. Indeed, we agree entirely with these VIews which JS why we included a separate section in the article entitled 'Ex-post vs ex-ante Arguments'. In this section we directly address the issues raised. However, although agreeing with these sentiments in general we cannot agree that this problem renders the article worthleM. If empirical studies, which are by necessity based on ex-post data, are to be considered valueless, one would have to c~nclude that highly respected journals such as the Journal of Finance, the Journal of Financial and Quantitative Analysis, the Accounting Review, the Journal of Accounting Research, etc. have had inferior academic standards over the past 25 years. Indeed, most of the major recent works in Finance have been empirical studies and one only needs to list the names of men such as Fama, Jensen, Roll, Beaver, and Sharpe to realize that empirically based research is universally accepted. The key of course is to find a consistent result. Therefore, in undertaking an analysis such as ours it is true that if only one period were examined, this would constitute a one-observation study. However, where several periods are independently examined and a consistent result is found, then surely this must provide some information which might cause investors to modify their current (ex-ante) behaviour. In this article, what we attempted to show was that over all periods examined, on a risk-adjusted basis, krugerrands were never a desirable asset for SA investors to hold in their portfolios. If this was a well known and accepted fact then it is true that our study has no value. However, our belief based on the volume of sales in krugerrands over the periods examined is that this was not the case. As such we believe th~ results of the study may cause investors to adjust their ex-ante decisions. Surely that constitutes information and hence a contribution to knowledge. J.F. AFFLECK-GRA ves and G.D./. BARR, Graduate School of Business, University of Cape Town, Private Bag, Rondebosch, 7700. December 1985