Examination of the Greek Stock Market: An Emerging or a Developed One? An Econometric Approach

Abstract

The present paper examines whether the Greek stock market has an emerging or a developed market status, using a sample of 25 national equity market indexes and the world market index for 14 years (1992-2006). Moreover there is an attempt to examine the diversification benefits of an international orientated investor when holding Greek equity, before and after the introduction of Euro to the Greek economy (2001). In order to find the level of integration of the Greek stock market to the developed ones, the Dynamic Conditional Correlations (DCC), (Engle, 2002) are calculated and compared, as well as, the Cointegration relationships between Greek market and all the other markets according to the Johansen (1988) approach. The diversification benefits are examined in the short-run by comparing the returns, volatility and correlations, while in the long-run by the number of common stochastic trend of the Greek market with the other markets and the speed of adjustment to this trend after a shock. The results give evidence that the Greek market was clearly acting as an emerging one during the most of the previous decade, while after the Euro introduction Greek equity market has gained in terms of integration to the developed ones and could be assigned within a group of European markets, not yet completely integrated to the giant global markets. Consequently, the diversification benefits have been minimized, although not completely eliminated.