Abstract
The impact of the Greek political elections on the return and volatility of the Athens Stock Exchange (ASE) is investigated using both the standard event study methodology and various univariate GARCH models. The empirical results reveal positive pre- and post-election abnormal returns, but negative on the day of the election. Strong evidence is also found that suggests that the election outcome significantly affects the ASE return; however, the evidence is rather limited for the ASE volatility. The empirical findings raise doubts about the efficiency of the Greek stock market and might have important implications for investors with respect to decisions regarding entering and/or exiting the market or investment strategies around time periods where political elections are going to take place
Highlights
Greece is known as the birthplace of democracy and has a long history of political elections
After the collapse of the military junta in 1974 and the restoration of the parliamentary democracy, the political environment in Greece is stable with two political parties dominating the political life: the conservative party known as New Democracy (ND)
The traditional and very popular event study methodology, described well by Dodd and Warner (1983) and Brown and Warner (1985), is adopted to examine the behavior of the Athens Stock Exchange (ASE) composite index daily return around the election dates during the period from January 1985 to February 2008, while the abnormal returns (ARs)(1)-GARCH, AR(1)EGARCH and AR(1)-GJR-GARCH models are employed, as proposed by Lin and Wang (2005), to examine the impact of the government change on the stock return and volatility of the ASE
Summary
Bratsiotis (2000), for example, examined the inflationary consequences of elected political parties in Greece before and after its commitment to the Single European Act (SEA) in 1986 and found that inflation plays a significant role in the political partisan cycle in Greece after the introduction of SEA Another set of studies examined the stock market efficiency around political election dates. Model and daily data for the ASE composite index from January 1987 to June 2004, they found that political changes have a significant impact on the conditional variance in the ASE and they presented evidence that the behavior of the return is asymmetrically affected by past innovations They reported that volatility increases more in the pre-election period and when the right-wing party is in power. It was found that stock markets with short trading history had stronger market reaction around election dates
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