The Impact Of Non Linearities, Thin Trading And Regulatory Changes In The Efficiency Of An Emerging Capital Market

Abstract

In this paper we provide additional empirical evidence on the importance of the right regulatory changes in the efficiency of emerging capital markets. We focus on the Greek capital market and its Athens Stock Exchange for the period between 1989 to 1999. In recent years, regulatory policies in Greece have sought to strengthen the safety, credibility and transparency of the capital market, and the Hellenic Capital Market Commission has focused on the protection of the stock exchange from systemic risks, enacted codes of conduct for investment services companies, institutional investors and underwriters, and applied measures for the protection of investors.

Using data from the Athens Stock Exchange for the last decade, we present evidence that the inefficiency observed up to 1993 was manifested through non-linear behavior. Probably, this was the result of the characteristics of the market at this time, as it has been shown to be outside the risk-return relationship. However, in recent years many changes have characterized the institutional and regulatory framework and there is strong empirical evidence that after 1993 the market became more efficient. Our results are in accordance with the findings of other related studies concerning emerging capital markets.