They would like to thank an anonymous referee and the editors Richard Briston and Peter Pope for very useful comments. They would also like to thank Richard D.F. Harris, Evi Kaplanis, Bernard Pearson, Gill Spungin and Apostolis Phillippopoulos for helpful discussions and comments on an earlier version of the paper.
Structural Changes in Expected Stock Returns Relationships: Evidence from ASE
Article first published online: 17 OCT 2006
Journal of Business Finance & Accounting
Volume 33, Issue 9-10, pages 1610–1628, November/December 2006
How to Cite
Karanikas, E., Leledakis, G. and Tzavalis, E. (2006), Structural Changes in Expected Stock Returns Relationships: Evidence from ASE. Journal of Business Finance & Accounting, 33: 1610–1628. doi: 10.1111/j.1468-5957.2006.00656.x
- Issue published online: 2 NOV 2006
- Article first published online: 17 OCT 2006
- (Paper received April 2005, revised version accepted August 2006. Online publication October 2006)
- risk premia;
- Fama and MacBeth tests;
- recursive least squares;
Abstract: This paper suggests a recursive application of Fama and MacBeth's (1973) testing procedure to assess the significance of macroeconomic factors and firm-specific effects priced in explaining the cross-sectional variation of expected stock returns over time. The paper applies the suggested testing procedure to investigate the source of risks of the Athens Stock Exchange (ASE). Among the variables examined, it finds out that the changes in the short term interest rates and firm size can explain a significant proportion of the variation of the ASE individual returns. The paper argues that the significance of interest rate changes can be associated with monetary policy changes introduced by the Greek authorities after the mid-nineties. These changes were focused on targeting interest rates, instead of monetary aggregates.