Market efficiency and the Euro: the case of the Athens Stock Exchange

Abstract

The efficient market hypothesis (EMH) is tested in the case of the Athens Stock Exchange (ASE) after the introduction of the euro. The underlying assumption is that stock prices would be more transparent; their performance easier to compare; the exchange rate risk eliminated and as a result we expect the new currency to strengthen argument in favour of the EMH. The General ASE Composite Index and the FTSE/ASE 20, which consists of “high capitalisation” companies, are used. Five statistical tests are employed to test the residuals of the random walk model: the BDS, McLeod-Li, Engle LM, Tsay and Bicovariance test. Bootstrap as well as asymptotic values of these tests are estimated. Alternative models from the GARCH family (GARCH, EGARCH and TGARCH) are also presented in order to investigate the behaviour of the series. Lastly, linear, asymmetric and non-linear error correction models are estimated and compared.