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

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

An Out-of-Sample Test for Nonlinearity in Financial Time Series: An Empirical Application

This paper employs a local information, nearest neighbour forecasting methodology to test for evidence of nonlinearity in financial time series. Evidence from well-known data generating process are provided and compared with returns from the Athens stock exchange given the in-sample evidence of nonlinear dynamics that has appeared in the literature. Nearest neighbour forecasts fail to produce more accurate forecasts from a simple AR model. This does not substantiate the presence of in-sample nonlinearity in the series.nearest neighbour, nonlinearity

Market Efficiency and the Euro: The case of the Athens Stock Exchange

The behaviour of an emerging market, the Athens Stock Exchange (ASE), after the introduction of the euro is investigated. 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 the 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 and 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.Non-Linearity, Market Efficiency, Random Walk, GARCH, non- linear error correction

Testing the assumption of Linearity

The assumption of linearity is tested using five statistical tests for the US and the Canadian unemployment rates. An AR(p) model was used to remove any linear structure from the series. Strong evidence in favour of non-linearity was found in the case of Canada. The result for the US is not so clear cut.non-linearity