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Greek market efficiency and its international integration

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  • Dicle, Mehmet F.
  • Levendis, John

Abstract

Political, economic and legal risks are among the causes of market inefficiency and the consequent under-development of financial markets. To further the understanding of the factors affecting market development, this study evaluates the Athens Stock Exchange (ASE). The Greek market provides a unique opportunity to isolate market efficiency as a factor in market development. Since its membership to the European Union (EU) in 1981, political and legal risks in the Greek market are similar to those of the other EU member countries such as the U.K., Germany and France. Greece's inclusion in the Eurozone in 2000 has eliminated many of the economic risks. The unrealized potential of the ASE is therefore questioned. Considering the relatively small number of stocks in the ASE, market level analysis is potentially inappropriate: studies may be rejecting the ASE's efficiency due to irregularities in a few influential stocks. Thus, this study analyzes the efficiency of the ASE by evaluating the market's, as well as individual stocks', returns. A well documented anomaly for the ASE, the day-of-the-week effect, is evaluated as are return predictability tests including a runs test, causality from other markets, and causality from liquidity. Both on the market level and on the individual level, evidence of inefficiencies are found. Based on the evidence that about 94% of Greek stocks' returns are Granger-caused by at least one foreign market, it is concluded that the Greek market lacks the appeal for international diversification. Overall, the ASE's unrealized potential is blamed on lingering market inefficiencies and especially on its causal relationship with international markets.

Suggested Citation

  • Dicle, Mehmet F. & Levendis, John, 2011. "Greek market efficiency and its international integration," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 229-246, April.
  • Handle: RePEc:eee:intfin:v:21:y:2011:i:2:p:229-246
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:accfor:v:38:y:2014:i:1:p:1-17 is not listed on IDEAS
    2. Juan Benjamín Duarte Duarte & Juan Manuel Mascareñas Pérez-Iñigo, 2014. "¿Han sido los mercados bursátiles eficientes informacionalmente?," REVISTA APUNTES DEL CENES, UNIVERSIDAD PEDAGOGICA Y TECNOLOGICA DE COLOMBIA, June.
    3. Nikolaos Sariannidis & Polyxeni Papadopoulou & Evangelos Drimbetas, 2015. "Investigation of the Greek Stock Exchange volatility and the impact of foreign markets from 2007 to 2012," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 8(2), pages 55-68, October.
    4. Koulakiotis, Athanasios & Babalos, Vassilios & Papasyriopoulos, Nicholas, 2016. "Financial crisis, liquidity and dynamic linkages between large and small stocks: Evidence from the Athens Stock Exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 46-62.
    5. Juan Benjamín Duarte Duarte & Juan Manuel Mascare?nas Pérez-Iñigo, 2014. "Comprobación de la eficiencia débil en los principales mercados financieros latinoamericanos," ESTUDIOS GERENCIALES, UNIVERSIDAD ICESI, November.

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