The Applicability of American Models to the Greek Stock Market
Darrol J. Stanley
Demos Vardiabasis
Pepperdine University
Malibu, CA. USA
Demetrios Moschos
University of Athens
Athens, Greece
ABSTRACT
One of the important exercises of economic and financial research is to examine the efficiency of the equities market. There are many reasons for this. One is due to the importance efficiency has on the allocation of capital and the impact on economic activity. Others center on the desire to find an exploitable anomaly for active investment management. This paper seeks to do both. The paper will explore the Greek stock market over the past ten years utilizing four methods employed in the United States that have questioned market efficiency and have heretofore not been utilized in the investigation of the Greek stock market. The first investigation centers on the use of a Price Momentum Model employing a mean-reversion sector strategy over a 52 week period. The second investigation centers on the use of Price to Normalized Earnings. Normalized earnings differ from actual earnings due to adjustments for cyclical and/or non-recurring earnings. The third method centers on price to book ratios. The fourth method will be a number of price momentum strategies including, but not limited to, 52, 26 and 13 week relative strength. The objective of all methods will be to examine the value of low and high multiples in developing sectored portfolios. The hypotheses are that the four strategies’ sectored portfolios will have a Sharpe Ratio high enough to question the EMH for the Greek stock market for the weak-form and semi-strong form basis as well as providing workable investment strategies. Variables utilized will be formatted by Ford Equity Research. Results include transaction costs. Comparisons with American stock market results establish potential investment parameters for the Greek stock market in a rapidly changing world economy.
Email: dstanley@pepperdine.edu
JEL: G15; G30