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Structural Changes in Expected Stock Returns Relationships: Evidence from ASE

Authors

  • Evangelos Karanikas,

    1. The first author is from the Equities Research Department, HSBC Pantelakis Securities, Athens, Greece. The second author is from the Department of Accounting & Finance, Athens University of Economics & Business. The third author is from the Department of Economics, Athens University of Economics & Business.
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  • George Leledakis,

    1. The first author is from the Equities Research Department, HSBC Pantelakis Securities, Athens, Greece. The second author is from the Department of Accounting & Finance, Athens University of Economics & Business. The third author is from the Department of Economics, Athens University of Economics & Business.
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  • Elias Tzavalis

    Corresponding author
    1. The first author is from the Equities Research Department, HSBC Pantelakis Securities, Athens, Greece. The second author is from the Department of Accounting & Finance, Athens University of Economics & Business. The third author is from the Department of Economics, Athens University of Economics & Business.
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  • 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.

* Address for correspondence: Elias Tzavalis, Department of Economics, Athens University of Economics & Business, Athens 10434, Greece.
e-mail: E.Tzavalis@aueb.gr

Abstract

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.

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