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MODELLING THE GREEK STOCK EXCHANGE

by

KONSTANTINOS KOSTOULAS

Student Number: 9910284

A dissertation submitted in partial


fulfilment of the requirements for the
degree of

MSc in International Banking and Finance

LONDON GUILDHALL UNIVERSITY

London, 2000
LONDON GUILDHALL UNIVERSITY

MODELLING THE GREEK STOCK EXCHANGE

by

KONSTANTINOS KOSTOULAS

Supervisor
: Dr. Ivonia Rebelo
Depar
tment of Economics

ii
TABLE OF CONTENTS

Chapters: Pages:
Acknowledgements v
Abstract vi
1: Introduction 1
2: Literature Review 3
3: Main changes the last twenty years 10
3.1) Value of stock market transactions 10
3.2) Market value of stocks listed on the ASE
3.2) 11
3.3) The ASE Composite index
3.3) 12
3.4) Number of companies listed on the ASE
3.4) 15
3.5) Profitability of companies
3.5) 15

4: Fitting ARIMA (p,d,q) models for the indices 17


4.1) Explanation of the ARIMA model 18
4.2) Unit Root testing 19
4.3) ARIMA estimation procedure 24
4.4-4.13) Fitting ARIMA models for the indices 26-47
4.14) Summary of Results 48
5: Modelling Volatility in the ASE 49
5.1) Univariate GARCH and E-GARCH 49
5.2) An exponential GARCH model for the ASE Composite index 51

5.3) Fitting the model 52

6: Logit models for the ASE Bank index 56


6.1) One percent or larger decline 57
6.2) One percent or greater increase 61
6.3) Comparison between the models 64
7: A measure of persistence of shocks 65-70
8: Conclusion 71
References 73
Appendix a-dd

iii
LIST OF FIGURES

Numbers: Pages:
1: The ASE Composite Index from 01/01/97 to 22/05/2000 14
2: Main Greek Stock Market changes the last twenty years 16
3-12: Trended variables 20-24
13-32: ARIMA specifications and plots of actual and fitted values 26-47
33: Summary of results 48
34: An E-GARCH model for the Composite index 52
35: Histogram of scaled residuals and
the t-distribution density 53
36: Estimated values of h hat for the Composite Index 54
37: Relationship between volatility and the stock market 55
38: Modelling the probability of a decline in the level of the
Bank index by one percent or more 58
39: Plot of Actual Values and fitted probabilities for the
Logit model 1 60
40: Out-of-sample forecasts for model 1 60
41: Modelling the probability of an increase in the level of the
Bank index by one percent or more 61
42: Plot of Actual Values and fitted probabilities for the
Logit model 2 63
43: Out-of-sample forecasts for model 2 63
44: Persistence of shocks to the indices (table) 68
45: Chart showing persistence of shocks to the nine indices 70

Companies listed on the ASE 30/04/99 a-h


Unit Root tables i-r
Printouts of Single equation
Static or Dynamic forecasts for each of the indices s-bb
Test for ARCH effects in the ARIMA equation of cc
the Composite index

iv
Test for Serial Correlation of residuals cc
Analyses of functions of parameters for the indices dd

ACKNOWLEDGEMENTS

The author is grateful to his supervisor, Dr. Ivonia Rebelo, for her insightful advice
and valuable support. I would also like to thank my father, George, for providing me
with documents in Greek related to the Athens Stock Exchange.

v
Abstract

In this dissertation, the Athens Stock Exchange (ASE) is examined from different
econometric perspectives. Various types of econometric models are estimated in order
to examine its efficiency. Namely, ARIMA, Logit and GARCH models are fitted to the
indices of the market. The results show if, and to what extent, these models can
forecast a rise or a fall in the market, and provide useful and interesting evidence
about it, which could be exploited by investors.
Shocks that occur in the market have a larger or smaller impact on each of the
indices. That persistence of shocks to the indices is also measured. The estimates
obtained provide an indication of sensitivity of each of the indices to shocks. In this
way, a potential investor could assess the riskiness of a project using something more
than ‘traditional’ market volatility.

vi
Chapter 1

INTRODUCTION

The aim of this dissertation is to model the Greek Stock Market. Three different
econometric models will be used, aiming at viewing the Greek Stock Exchange from
different perspectives.

The Greek Stock Market is represented by the Athens Stock Exchange (hereafter
ASE). The ASE comprises several indices. The most general of them is the ASE
general or Composite Index. However, there are nine smaller indices, namely the
Bank index, the Constructions Index, the Holdings index, the Industrial index, the
Investment index, the Insurance index, the Leasing index, the Parallel index and the
Various index. Each of these indices represents a sector. The companies that are listed
on the ASE and belong to each sector make up each index. The data I will use to
perform the econometric analysis are closing prices of daily index data. The ASE
Composite index will be modelled using data from 01/01/1997 to 22/05/2000. That
corresponds to a holding period of about 3.5 years. The rest of the indices will be
modelled using data from 24/05/1999 to 22/05/2000, which implies a one-year
holding period.

The dissertation begins with an overview of the relevant literature. I refer to empirical
work in the area of modelling and forecasting financial markets, laying emphasis on
papers talking about the Greek Stock Market.

The third chapter talks about the main changes that took place in the Greek Stock
Exchange over the last twenty years. These changes include the events that have
affected the Composite Index, the value of stock market transactions, the market value
of stocks of companies listed on the ASE, the number of companies as well as their
profitability.

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In the fourth chapter, which is the most extensive, I attempt to construct ARIMA
(p,d,q) models for each of the nine indices and the Composite index over the periods
specified above. After that, I compute out-of-sample forecasts for each model,
compare them with the actual data and comment on their performance.

In the fifth chapter, I am modelling volatility for the ASE Composite Index. The
appropriate GARCH specification is found by comparing the values of the model
selection criteria, namely the Akaike Information Criterion, the Schwarz Bayesian
Criterion and the Hannan-Quinn Criterion. I then explain the way in which volatility
in the ASE can be exploited by speculators. This chapter concludes with a figure
which shows that periods of low volatility are associated with rises in the market and
periods of high volatility are associated with falls, thus verifying empirically this
theoretical statement.

In the sixth chapter, I use two Logit models to estimate first the probability of a
decline in the level of the ASE Bank Index by one percent or more, and then the
probability of a rise of the ASE Bank index by one percent or more. The results
obtained, especially in the first case, provide evidence against the weak form of
market efficiency.

The seventh chapter talks about persistence of shocks to the indices of the ASE. Using
the Campbell and Mankiw measure of persistence, I find which index will be affected
more by shocks once they occur. I also find where shocks are expected to die out
faster. In this way, one can have an alternative indication of risk.

Finally, the concluding chapter examines the success rate of the forecasts and
provides a critical appraisal of the dissertation.

2
Chapter 2

LITERATURE REVIEW

The relevant literature regarding the modelling of stock markets using various types
of econometric models is vast.
For example, Blake (1994) tests for non-linear and chaotic dynamics in U.S financial
data. Although he does not find evidence of chaotic dynamics, he finds interesting
evidence of non-linearity. He stresses the fact that what matters most in modeling
financial time series is identifying the correct patterns in the data and producing good
short-term directional forecasts. High quality forecasts may be unreasonable for
financial time series.
As an example of what a small amount of predictability means in a financial market
the weekly British Pound/U.S. Dollar foreign exchange series was used. It was
sampled every Wednesday from January 1974 through July 1992 at noon New York
time. A trader with access to just the correct sign forecast to this series would still
have to work hard to claim that the series was chaotic, but the trader would not care
much about that since the daily return to a strategy of longing or shorting the pound
according to the directional forecast would yield a return of about 1% per week, or
about 68% compounded over a year. Even if the trader were charged a large
transaction cost of 0.5% per trade, the strategy would at worst earn about 30% per
year.
If a positive lyapunov exponent was reliably estimated, it would probably imply even
greater predictability over the short horizon.
According to Blake, it is unlikely that such predictable structure exists for any
financial time series. These are only approximations and conjectures, but they
emphasize an important point. For financial series there may be an extremely wide
gap between successful nonlinear forecasting, and actual identification of chaotic
dynamics in a financial market.
Kaiser (1998) produces volatility forecasts for German stocks using a variety of
GARCH model specifications. This paper presents theoretical models and their
empirical results for the return and variance dynamics of German stocks. A factor

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structure is used in order to allow for a parsimonious modeling of the rest two
moments of returns. Dynamic factor models with GARCH dynamics (GARCH(1,1)-
M, IGARCH(1,1)-M, Nonlinear Asymmetric GARCH(1,1)-M and Glosten-
Jagannathan-Runkle GARCH(1,1)-M) and three different distributions for the
disturbances (Normal, Student's t and Generalized Error Distribution) are considered.
Out-of-sample forecasts for the stock returns based upon these models are computed.
These forecasts are compared with forecasts based on individual GARCH(1,1)-M
models, static factor models, naive, random walk and exponential smoothing
forecasts.
The results described are based upon daily return series of 30 German stocks. These
stocks were contained in the German stock index DAX at that time. The data used
covers the period from January 08, 1990 to May 31, 1994, resulting in 1082 return
values.
The series of returns from German stocks used in this paper are found to exhibit the
usual characteristics of financial time series, i. e. leptokurtosis, volatility clustering
and the leverage effect.
All xGARCH specifications have been found to capture the structure of the factor
dynamics. The NGARCH(1,1)-M model with t distributed disturbances turned out to
be among the best models.
Dynamic factor models with xGARCH dynamics, i.e. Factor-xGARCH models are
able to capture the behaviour of the individual stock returns. Asymmetric Factor
xGARCH models have been found to perform better than symmetric ones.
A regression of the observed variances on their forecasts shows that no model gives
unbiased predictions for all stocks. However, the Factor-xGARCH, individual
GARCH(1,1)-M and the Exponential smoothing forecasts are better in this sense than
the other models.
It can be concluded that Factor-xGARCH models give a good fit of the volatility of
stock returns. They provide forecasts for the stock return volatilities which are much
better than static volatility models and even outperform individual GARCH models
while being easier to estimate than the latter. However, time series models without
much economic theory behind, i. e. the Exponential smoothing model, seem to give
more precise forecasts.

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Nelson (1999) explains why the change in shares helps predict U.S stock returns.
He observes that the stock of firms that issue equity has, on average, performed
poorly in subsequent years, while the stock of firms that repurchase has typically done
well. One explanation for this pattern is that firms are exploiting their superior
knowledge about the value of their stock by buying it when it is undervalued and
selling it when it is overvalued. His paper presents supporting evidence for this
explanation of the excess returns: The change in shares outstanding is positively
correlated with proxies for the deviation of current stock price from fundamental
value. The excess returns following the change in shares remain significant after
controlling for these proxies, and the changes in shares that can be explained by the
proxies predict stock returns more powerfully than changes in shares explained by
other reasons.
He uses data from 1978 to 1997 from the December 1997 Center for Research in
Security Prices (CRSP) stock file and the May 1998 COMPUSTAT database. The
CRSP database includes information on all securities traded on the NYSE, AMEX and
Nasdaq exchanges. The change in shares is corrected for splits and stock dividends.
The data selected from COMPUSTAT include the book value of equity, the market
value of equity, sales, net income before extraordinary items, depreciation, investment
in plant and equipment, the stock of plant and equipment, and total assets. These
variables are used to form the book-to-market ratio, the ratio of cash flow (net income
plus depreciation) to market value, the capital investment rate (investment in plant and
equipment divided by the lagged capital stock), and the ratio of book equity to assets
as an (inverse) measure of leverage. He uses the OLS method to perform the analysis.
He finds that the characteristics of firms that issue and repurchase equity suggest the
change in shares predicts returns because issuance is encouraged by stock price
overvaluation and repurchase by undervaluation.
According to Nelson, there are at least two reasons why the ability of the change in
shares to predict stock returns deserves special attention among stock market
anomalies. First, the hypothesis that the change in shares might predict returns follows
logically from the possibility that markets are not perfectly efficient.
The second reason the change in shares anomaly deserves attention is that it
represents one of the linkages between the stock market and the real economy. One of
the ways deviations of stock prices from fundamental value could affect the economy
is through firms’ capital investment decisions. Indeed, once the predictive power of

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the change in shares is acknowledged, it is hard to maintain that the stock market does
not influence capital investment.
Yang (1999) constructs an artificial neural network (ANN) to simulate, model and
predict stock returns. He constructs an artificial equity market using an Artificial
Neural Network (ANN). Based on the heterogeneous beliefs and trading strategies
prevailing in actual equity markets, he divides traders into three groups: value traders,
momentum traders and noise traders. Characteristically, value traders are endowed
with an ANN learning mechanism that allows them to forecast the dividend growth
rate. A double-auction market setting is adopted as his market mechanism for
simulating the market structure.
His artificial market is able to replicate several important features of real markets,
including excess volatility, volatility persistence, and serial autocorrelation of stock
returns. The profitability of three trading strategies is compared.
On average, value traders exhibit the highest Sharpe ratio and significantly positive
excess returns.
Sharpe (1999) examines the effect of expected inflation on stock prices
and expected long-run returns.
Ex ante estimates of expected long-run returns are derived by
incorporating estimates of investor expectations of future corporate
cash flows into a variant of the Campbell-Shiller dividend-price ratio
model. In this model, the log earnings-price ratio is expressed as a
linear function of expected future returns, expected earnings growth
rates, and the log of the current dividend-payout ratio. Investor
expectations of earnings growth are inferred from equity analysts’
earnings forecasts; inflation expectations are drawn from surveys of
professional forecasters.
He finds that the negative relation between equity valuations and
expected inflation is the result of two effects: a rise in expected
inflation coincides with both (i) lower expected real earnings growth
and (ii) higher required real returns. The effect of expected inflation
on required (long-run) real stock returns is also substantial.

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A one percentage point increase in expected inflation is estimated
to raise required real stock returns about one percentage point,
which amounts to about a 20 percent decline in stock prices.
Thorbecke (1995) adopts similar views, claiming that industry stock returns in the U.S
respond to shocks in monetary policy. Monetary policy is measured by innovations in
the federal funds rate and non-borrowed reserves, by narrative indicators, and by an
event study of Federal Reserve policy changes. To examine the relationship between
monetary policy and stock returns a variety of empirical techniques are employed.
Impulse-response functions and variance decompositions from a vector autoregression
indicate that there is a large and statistically significant relationship between either
negative shocks to the federal funds rate or positive shocks to nonborrowed reserves
and subsequent increases in industry stock returns. Generalised method of moments
estimation reveals that narrative evidence of a monetary expansion is also strongly
correlated with increases in stock returns. These results support the hypothesis that
monetary policy, at least in the short run, has real and quantitatively important effects
on the economy.
Furthermore, Ramos (1996) forecasts market shares in Portugal using Vector
Autoregressive (VAR) models. He develops a Bayesian vector autoregressive model
(BVAR) for the leader of the Portuguese car market to forecast the market share. The
model includes five marketing decision variables. The Bayesian prior is selected on
the basis of the accuracy of the out-of-sample forecasts. He finds that his BVAR
models generally produce more accurate forecasts of market share. The out-of-sample
accuracy of the BVAR forecasts is also compared with that of forecasts from an
unrestricted VAR model and of benchmark forecasts produced from univariate (e.g.,
Box-Jenkins ARIMA) models. Additionally, competitive dynamics of the market
place are revealed through variance decompositions and impulse response analyses.
In his paper, Ramos develops the Bayesian vector autoregressive model (BVAR) for
the leader of the Portuguese car market, for the period 1988 through 1993 using
monthly data. The results, in general, show that there are gains from using a BVAR
approach to forecasting. BVAR models produce more accurate forecasts than the
alternative forecasts.
Apart from those, there are also numerous other papers which analyse the behaviour
of stock markets in many other countries.

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However, not many empirical papers examine the Greek Stock Market and none of
them is recent. The latter may well be attributed to the fact that the Greek Stock
Market is an emerging market and is very small compared to the world’s major capital
markets.
A relatively old piece of research is that by Papaioannou (1982, 1984), who reports
price dependencies in stock returns for a period of at least six days. Panas (1990)
provides evidence of weak-form efficiency for ten large Greek firms. Koutmos,
Negakis, and Theodossiou (1993)1 find that an exponential generalized ARCH model
is an adequate representation of volatility in weekly Greek stock returns. The most
recent piece of research is that of Barkoulas, Travlos and Baum (1996). They
examine the potential presence of stochastic long memory in the Athens Stock
Exchange (ASE), using weekly returns data from 07/01/1981 to 11/10/1989.
They find evidence of significant autocorrelation between observations widely
separated in time, that is long memory, or long-term dependence after testing for
the presence of fractional dynamics in the returns series for the
Greek stock market. The fractional differencing parameter is
estimated through application of the spectral regression method on
weekly data for a carefully constructed stock index over a ten-year
period. To address market efficiency issues, the forecasting
performance of the estimated fractional models is compared to that
of benchmark linear models on an out-of-sample basis.
The obtained results strongly suggest that the stochastic long-
memory behavior of the Greek stock market–an emerging capital
market–markedly differs from that of major, well-developed stock
markets. Long-memory forecasts of Greek stock returns dominate
linear forecasts over longer forecasting horizons.
The presence of long memory in Greek asset returns contradicts the weak form of the
market efficiency hypothesis, which states that, conditioning on historical returns,
future asset returns are unpredictable. Price movements in the Greek stock market
appear to be influenced by realizations from both the recent past and the remote past.
All the above papers about the Athens Stock Exchange are quite old. Furthermore,
none of them appears to produce directional forecasts for the market performance of

1
I reach a similar conclusion in Chapter 5 using recent data

8
different sectors of the economy, which are represented by individual indices. None of
them also talks about the risks involved when investing in a particular sector.
Moreover, the volatility models estimated are old and consequently, do not reflect the
current situation.
This dissertation bridges that gap in the literature, in the sense that it provides modern
and additional information to these issues.
However, finding the data for the analysis turned out to be difficult. The ASE Web site
www.ase.gr does not contain time series data. The Datastream computer in the
University does not contain any data having to do with the Athens stock Exchange
(which would make my work a lot easier since Datastream data are already in Excel
format to be imported directly into econometric packages).
I found the time series data needed to perform the analysis in Bloomberg, but then
again only with great difficulty. That is because time series data from the Bloomberg
computer could only be obtained at a rate of twenty observations at a time and could
only be saved as pictures. The latter made it necessary for me to open about thirteen
files in picture format for each case into Excel and consequently, input the data
manually. Needless to say, typing manually 3,200 observations became a very time-
consuming task.

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Chapter 3

MAIN CHANGES THE LAST TWENTY YEARS

The main changes in the Greek stock market during the last twenty years are
presented below. The changes that took place have to do with:
a) The value of stock market transactions
b) The total stock market value of all the securities listed on the Stock Exchange
c) The Greek stock exchange's Composite Index
d) The number of companies listed on the Athens Stock Exchange (hereafter ASE)
e) The profitability of the companies listed on the ASE.

3.1 ) Value of stock market transactions


The total daily transaction value of stocks in the ASE had remained constantly less
than £40,000 before the year 1990. In the summer of 1999 however, that value
reached the amount of £1,200 million within only a few trading days. The average
value of daily transactions for the year 1999 was £400 million. Indeed, a tremendous
increase in the volume of stock market transactions took place in the year 1999.
Before 1996, these transactions were worth £20 million a day. In 1997, they were
worth £48 million a day and in 1998 £70 million2.

2
Malindretou Vasiliki and Malindretos Pavlos (2000), “Stock Market”, Papazisis Publications, Athens
2000 (Greek version )

10
This rapid increase of the value of stock market transactions began from the middle of
1998 and culminated in August 1999. The latter brought about an unprecedented
change of climate in the Greek stock market.
The booming of the Greek stock market is attributed to:
i) The rapid decline of inflation from 20% to 2.3% and the decline of interest rates,
which was necessary in order to converge with the rest of the member countries of the
EMU. Because share prices go up as interest rates fall, a decline in interest rates is
beneficial to shareholders, until the stock market reaches equilibrium where interest
rates can no longer decline.
ii) The expectations about the prospects of Greek firms and the Greek economy within
the EMU zone are more than favourable. However, some points have to be taken into
consideration when examining what has happened to the Greek stock exchange:
First, the all-time high level of transaction value in the ASE in September 1999 is not
easily comparable with similar levels in other major international markets, even if we
take into account the small size of the Greek economy. That is because Greek savers
flocked to the stock market, which was accompanied by an excessive demand for
stocks. However, there was no such supply to absorb that demand, which resulted in a
sharp increase of asset prices.
On the contrary, there was an unanticipated excessive supply of new stocks in the last
three months of 1999, which explains the decline of Greek stock market prices in that
period. Many companies decided to increase their capital stock without prior notice,
taking advantage of the lax regulation. In any case, there was no such liquidity on the
part of investors to absorb that supply at the time. This factor precipitated a mini
crisis.
iii) Small investors play an increasingly important role as the stock market expands its
activities.
The Greek fiscal authorities have decided that as for September 1999 the tax imposed
on stock market transactions will be 0.6% instead of 0.3%. In this way, the
government hopes to achieve additional tax revenues amounting to £400 million this
year (2000).
After the mini-crisis that broke out in September 1999, the average daily stock market
transaction volume reduced to £400 million.

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3.2) Market value of stocks listed on the ASE
The stock market value of companies listed on the Greek stock exchange (measured
by degree of capitalization) has increased about 380 times since 1980. In 1980, the
stock market value of all the companies was £280 million, while in 1998, it was £46
billion and in 1999, it was £134 billion. If the increase of share prices in 1999 is
accounted for, then the current total capitalization of companies carries a weighting of
more than 160% of the Greek Gross National Product. That size of capitalization can
be compared with that of mature capital markets and especially with those that have
the biggest capitalization at world level (such as the United States of America (this
number amounts to 218% in the US and is just below 90% in the EMU area).

However, the ratio of current market prices to current market value of companies
listed in the ASE to GNP appears to be very high. That is because revenues coming
from illegal activities associated with the black economy are invested in the stock
market and these revenues cannot be included in the GNP3. In any case, bank deposits
are still high enough to allow for important liquidity transfers to the stock market,
which can boost demand and cause share prices to rise in the future.
The bank sector has the largest proportion of the total Greek stock market value,
followed by the foods sector, the metal sector, the constructions sector, the building
materials sector and textiles.
Important sectors of the Greek economy such as shipping and tourism are being
represented in the Greek stock market for the first time. However, there are still many
serious companies which are reluctant to be listed in the ASE, due to its uncertainty
and frequent periods of high volatility. These companies express fears that a potential
participation in the stock market is likely to have an adverse effect on their business
profile.

3.3) The ASE Composite index


The ASE composite index rose from a base value of 100 in 1980 to 5535 in the end of
the year 1999, that is, it has increased 54 times or by an average growth rate of 23.5%
since 1980.

3
Probopoulos George (1995), “The Greek Financial Intermediary System”, Alpha Pisteos Bank
Publications, (Greek version)

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Until the beginning of 1987, interest in the ASE was limited to Greek nationals. Then
the government freed capital controls for securities investments which helped the
market to take off due to the interest shown by the European Union (EEC at the time)
and third-country investors. This movement was further helped by the government
stabilization program of 1985-1987 which stimulated corporate profits and created
much optimism about their future growth. The market rallied during the first nine
months of 1987 resulting in an increase of 1068.27% in the stock index prior to the
October 1987 international stock market crisis. Despite sharp declines in the last three
months of 1987, the stock index enjoyed its highest annual return of over 250% in that
year. The market did not overcome the negative effect of the October stock market
crisis and for the next year and a half foreign investors left the Greek market (the
stock index decreased 18.04% in that period). 4In mid-1989, due to the impressive
positive developments that occurred in many EEC economies as well as the
expectations that the Conservative party would return to power, foreign investors
returned to Greece and a new rally began. In 1990, the return of a Conservative
government to power and the expectation of a more liberalized economy (as
evidenced by the government's intention to privatize many state enterprises) provided
a boost to the market and brought stock prices and trade volume up to record levels.
From July 1989 to the beginning of July 1990 the stock index recorded an increase of
613.20%. The rally ended in July 1990 as the market reacted negatively to the Middle
East crisis (the Iraqi invasion of Kuwait) and, later on, to the government's failed bid
to host the 1996 Olympic games. From July through December 1990 the stock index
recorded a decrease of 41.68%.
The index began to grow at a faster pace from March 1998 onwards. The latter is
mainly due to the removal of restrictions on interest rates, the devaluation of the
Greek drachma, the introduction of the drachma to the ERM exchange rate system as
well as the establishment of Greece as a participating country in the EMU in May
1998.
As a result, in the year 1999 the net returns on the index were 102.2%. However,
during the summer of 1999 the Greek stock market knew a period of very high
volatility. The index had a value of 6000 points in August, but stock prices plummeted
4
Barkoulas John, Travlos Nickolaos et al. (1996) ,” Long Memory in the Greek Stock Market “,
Department of Economics, Boston College , University of Piraeous and Athens Laboratory of Business
Administration

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immediately thereafter. As a result, the index lost 1000 points within a short period
and was slightly above 5000 points in the end of the year.
It should be noticed however, that the ASE general (Composite index) comprises 60
stocks of companies with high capitalization, which means that this index does not
give a true picture of the market.
There are controversial expectations in Greece at the moment regarding the future
behaviour of the ASE Composite Index. In any case, there are important events that
are expected to have a significant impact on the Greek economy in the near future but
whether this impact will be positive or not is unknown. An example of that is the
implementation of the new European currency, the Euro, and the potential response of
the Greek firms to the new competitive European framework. Other examples of such
events involve a further reduction of interest rates, the works that have to be made for
the Olympic games which are going to be held in Athens in 2004, the growth rate of
Greek GDP, the privatisation progress of public enterprises and organizations etc. It is
debatable if the above events have already been considered by the market and to what
extent. However, there is a convergence of views that the market will no longer boom
at a rate as such of the summer months of 1999. Indeed, the Composite index recorded
a decrease of 15.3% the first 5 months of 2000 (Figure 1)
Figure 1:
The ASE Composite Index from 01/01/1997 to 22/05/2000

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ASE Composite Index, 01/ 01/ 97-24/ 05/ 2000

7000

6000

5000

4000

3000

2000

1000

Observations

3.4) Number of companies listed on the ASE.

In the years between 1980 and 1998, the number of the companies listed on the ASE
(in both the main and parallel market) increased by 2.5 times. In 1980 there were 116
companies listed in the ASE. As of the end of 1990, the ASE had about
220 listings for common and preferred equities. In December 1998, it had
252 listings and in December 1999, it had 294. It is noteworthy that the rate of listing
of new companies on the ASE is not analogous to the rate of increase of the ASE
Composite Index. Indeed, some key sectors of the Greek economy (such as tourism)
are not represented in the stock market and some big Greek firms do not participate
in it.

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3.5) Profitability of companies

The net profitability of the companies listed on the ASE ranged from £10.6 million in
1998 to more than £200 million in 1989, and reached the amount of £3400 million in
1999. However, Greek companies do not usually pay large dividends so that retail
investors could rely on them. This means that the rate of growth of the companies'
profitability is much lower than the recent rate of the stock market booming. The
latter resulted in a great increase in the price to earnings (P/E ratio) 5. The P/E ratio
representing all companies in the ASE was 60 during the summer of 1999, 34 in 1998,
15.6 in 1990, while being just 9.2 in 1980. That P/E ratio of 60 is twice as high as the
respective P/E ratio in many countries which have a developed stock market (Figure
2).

In any case, the Greek authorities are committed to modernizing and liberalizing the
ASE in order to increase its efficiency and make it more accessible to international
investors. The reforms that were introduced are expected to positively affect the
market and lead to the expansion of its activities.

Figure 2 (Table):
Main changes the last twenty years

Stock Stock Net Profits


price market Number of of
index Transaction value value (£ companies companies
Years (1980=100) (in £ million) million) listed (£ million)

(1) (2) (3) (4) (5)


1980 100 7.4 280.6 116 30.6
1981 86.6 6 261.2 111 30.6
1982 93.4 5 271.4 113 22.8
5
Paparisteides Dimirios (1991), “Stock Market and the Potential Investor” , Galaios Publications
,Athens (Greek version)

16
1983 58.3 3 190.4 113 34.2
1984 59.2 2.6 196.8 114 47.2
1985 71 4.8 226.2 114 43.6
1986 103.9 9 313.2 114 67.8
1987 272.5 119.2 1131.2 116 90.2
1988 279.9 88.8 1196.8 119 116
1989 459.4 178.2 1993.2 119 204
1990 932 1217.4 4853.2 145 310.6
1991 809.7 875.2 4710.4 159 473.2
1992 672.3 614.6 4088.6 164 360
1993 958.7 1274.2 6234 150 622.4
1994 868.9 2522.8 7155.6 196 694.6
1995 914.1 2817 8051.8 215 730.8
1996 933.5 3980 11889.6 235 989
1997 1479.6 11604 19622.6 237 1461.6
1998 2737.6 28167.2 45717.4 258 1800.4
1999 5535.1 117592 134621.6 294 3400

________________________________________________________
(1) ASE Composite Index (1980=100), (2) Data in the end of the year, (3) Data referring to the
whole year
(4) From 1990 onwards the data regarding the parallel market are also included, (5) Estimation

Source: Malindretou Vasiliki and Malindretos Pavlos (2000), “Stock Market”, Papazisis Publications,
Athens 2000 (Greek version) (numbers converted into £)

Chapter 4

ARIMA (p,d,q) MODELS FOR THE INDICES IN THE ASE

In this chapter, I estimate ARIMA models for all the indices in the ASE. I first create
the natural log of the variables and their first differences. I then test for unit roots
first in the natural logs and later in the first differences, in order to determine the
degree of integration. Once the degree of integration is determined, I find the correct

17
ARIMA specification for each index by comparing the values of the model selection
criteria for different specifications and selecting the one with the highest values.
Furthermore, I construct the ARIMA equation for each index and produce out-of-
sample forecasts for the last six observations (namely 246 to 251, which correspond
to dates 15/05/2000 to 22/05/2000). I take the sum of these forecasts, which is the
total change (difference) predicted by the model for the forecast period (in natural log
form). I then add the log value which corresponds to the level of the index under
consideration the day just before the start of the forecast period (observation 245,
which corresponds to date 12/05/2000), to the total change predicted by the model
and take the exponential. In this way, I find the predicted level of the index under
consideration in end of the forecast period. Finally, I comment upon the success or
failure of the forecasts to predict the change in the level of that index.

4.1) Explanation of the ARIMA model6

Time-series models have been developed that combine an autoregressive process (one
which the level of the process is a linear function of past levels) with a moving
average model (in which the model values are given by a linear function of past
errors). These models are known as autoregressive moving average models or ARMA.
An ARMA (p, q) model will have p lags in the autoregressive process and q lags in the
moving average model. An ARMA (3,2) model, for example, would look as follows:
Yˆ   0   1Yt 1   2Yt  2   3Yt 3  1 t 1   2  t  2 (1)

If differencing is needed to produce a stationary series before applying the ARMA


process, then the degree of differencing will need to be known. Thus, there are three
parameters in the full ARIMA process. They are p, the order of autoregressive part of

6
Selective quotation from Watsham&Paramore (1997), "Quantitative Methods for Finance", First
Edition, Thomson Business Press

18
the model, d, the degree of preliminary differencing that is required, and q, the order of
the moving average part of the model.
The ARIMA (p,d,q) model for the variable x is given by:

y t  f (t )  1 y t 1   2 y t 2  ....   p y t  p   t  1 t 1  .....   q  t q


, (2), where
y t  d xt  (1  L) d xt
, and f(t) is the deterministic trend in y t (if any). In most
economic applications either d=0 and f(t)=α+δt, or d=1 and f(t)=μ.
As ARIMA models encompass autoregressive processes, moving average models and
integration, many time-series processes can be seen from an ARIMA standpoint.
In order to fit ARIMA models for the Athens Stock Exchange (ASE) indices, the
appropriate univariate model should be identified. That is, the first step is to select the
orders p, d and q. The selection of these orders is carried out in two stages: in the first
stage, d, the order of integration of the process is determined using the augmented
Dickey-Fuller (ADF) tests. Once the order of integration of the process is established,
the orders of the ARMA process, p and q, are then selected either by plotting the
correlogram of the time series and comparing it with the theoretical correlogram of a
specific time series model (Box-Jenkins approach) or by specifying a relatively high
order ARMA model, as the most general one and then using likelihood ratio tests or
one of the popular model selection criteria such as the Akaike information (AIC) or the
Schwarz Bayesian (SBC) to select a more parsimonious model. The model with the
highest value for the information criteria is selected.

4.2) Unit root testing procedure


Before applying the ARMA methodology to the indices, it is important to check if it is
difference or trend stationary. If it is trend stationary, I use the ARMA model for the
indices plus a deterministic trend, while if it is first-difference stationary, or integrated
of order 1, I(1), I use the ARIMA model.
Consider the univariate AR(1) process
y    (1  ) t  y t 1   t , t  1,..., n (3)
where  t is iid (0,  2 ) . If  1, it is trend stationary, while if   1 , it is difference
stationary with a non-zero drift  . Attempts to distinguish the difference stationary

19
process from a trend stationary series have generally taken the form of a (one-sided)
test of the null hypothesis of a unit AR root against the alternative of stationarity:
H 0 :   1 against H 1 :   1 .

It is important to note that when using the t-statistic for testing   1, I use the critical
values of the non-standard Dickey-Fuller unit root distribution rather than the standard
normal distribution. In the more general case where the disturbances,  t , t  1,2,...n
are serially correlated, I use the augmented Dickey-Fuller (ADF) unit root test statistic,
which is proposed to accommodate error autocorrelation by adding lagged differences
of y t :
p 1
y t    (1  ) t  y t 1    i y t i   t , t  1,..., n (4)
i 1

which can also be rewritten as


p
y t     t  y t 1    i y t i   t , t  1,..., n (5)
i 1

where the null is now H 0 :   1    0 . When using the ADF tests and interpreting
the results, the following points are worth bearing in mind:
1. Although ADF has good power characteristics as compared to other unit root
tests in the literature, it is nevertheless not very powerful in finite samples for
alternatives H 1 :    0  1 , when  0 is near unity.
2. There is a size-power trade-off depending on the order of the augmentation
used in dealing with the problem of residual serial correlation. Therefore, it is
often crucial that an appropriate value is chosen for p, the order of
augmentation of the test. Since the true order of p is not known, the two-step
procedure might be used whereby model selection criteria such as the Akaike
information criterion (AIC) or the Schwarz Bayesian criterion (SBC) are used
to select the order of the ADF regression, and the test is then performed.
The variables that represent the indices are INDEX, BANK, CONS, IND, HOLS,
INS, INV, LEAS, PAR and VAR. First I create their natural logs denoted as LINDEX,
LBANK, LCONS, LIND, LHOLS, LINS, LINV, LLEAS, LPAR and LVAR, their first
differences DINDEX, DBANK, DCONS, DIND, DHOLS, DINS, DINV, DLEAS,
DPAR and DVAR, and a constant for each case denoted as INPT. I then test for unit
roots using the augmented Dickey-Fuller (ADF) test statistic, which is proposed to

20
accommodate error autocorrelation by adding lagged differences of DINDEX,
DBANK, DCONS, DIND, DHOLS, DINS, DINV, DLEAS, DPAR and DVAR.
Since the variables are INDEX, BANK, CONS, IND, HOLS, INS, INV, LEAS, PAR
and VAR are trended,

Figure 3:
The variable INDEX is trended

8000
6000
4000 INDEX
2000
0
851
Observation
s

Figure 4:
The variable BANK

12000
11000
10000
9000 BANK
8000
7000
1 26 51 251
76 101 126 151 176 201 226 251
Observations

Figure 5:
The variable CONS

21
6000
5000
4000
3000 CONS
2000
1000
1 26 51 251
76 101 126 151 176 201 226 251
Observations

Figure 6:
The variable IND

4000
3500
3000 IND
2500
2000
1 26 51 251
76 101 126 151 176 201 226 251
Observations

Figure 7:
The variable HOLS

11000
9000
7000 HOLS
5000
3000
1 26 51 251
76 101 126 151 176 201 226 251
Observations

Figure 8:
The variable INS

22
5000
4500
4000
3500 INS
3000
2500
2000
1 26 51 76 101 126 151 176 201 226 251
251
Observations

Figure 9:
The variable INV

3500
3000
2500
2000 INV
1500
1000
1 26 51 251
76 101 126 151 176 201 226 251
Observations

Figure 10:

The variable LEAS

2000
1500
1000 LEAS
500
0
1 26 51 251
76 101 126 151 176 201 226 251
Observations

23
Figure 11:

The variable PAR

2500
2000
1500
1000 PAR
500
0
1 26 51 251
76 101 126 151 176 201 226 251
Observations

(Figure 12):

The variable VAR

8000
7000
6000
5000 VAR
4000
3000
1 26 51 251
76 101 126 151 176 201 226 251
Observations

I compute the ADF statistics for models with an intercept and a linear deterministic
trend. After selecting the correct order of the ADF regression using the different model
selection criteria, I concluded that the correct order is 1 .The ADF statistic for p=1 is in
all cases below (in absolute value) its asymptotic 95 percent critical value. The same is
also true if higher values of p are considered. It is therefore not possible to reject the
null of a unit root in the log of the indices at the 5 per cent significance level.

I now test for a unit root in DINDEX, DBANK, DCONS, DIND, DHOLS, DINS,
DINV, DLEAS, DPAR and DVAR. The first difference is not trended. However,
irrespective of the order of the augmentation chosen for the ADF tests, the absolute
values of the ADF statistics are all above the 95 percent critical value of the tests and
hence the hypothesis that the first difference of the indices has a unit root is firmly

24
rejected. From the above it can be concluded that the indices are integrated of order 1
or I(1) (See Appendix for detailed tables).

4.3) ARIMA estimation procedure


I use 851 daily observations of the ASE Composite Index from 01/01/1997 to
22/05/2000 (3.5 years holding period), and 251 daily observations of each of the rest
of the indices from 24/05/1999 to 22/05/2000 (364 day holding period) to estimate the
ARIMA models.
I now consider the problem of selecting the orders p and q for an ARIMA (p, 1,q)
model for the indices, or the ARMA (p,q) model of DINDEX, DBANK,DCONS, etc.
To select the orders of p and q, I first set them equal to a maximum value of three.
Since 4 observations at the start of the sample are lost when p and q take a maximum
value of 3, I estimate all the 16 ARMA(p,q), p,q = 0,1,2,3 models over the same
sample period, namely 5 to 845 for each case. I find the correct ARMA specification
for each index by comparing the values of the Akaike Information Criterion (AIC) and
the Schwarz Bayesian Criterion (SBC), and selecting the model with the highest
values. I am keeping the 6 observations in the end for forecasting. In the end of the
Chapter, I also construct a table that summarises my results.

4.4)Estimating an ARIMA (p,d,q) model for the ASE Composite Index


The ASE Composite Index is a capitalisation-weighted Index of Greek stocks listed on
the Athens Stock Exchange.
I find that the ARMA(1,0) specification is the most appropriate one for this index.
(Figure 13).

Figure 13:
An ARIMA (1,1,0) model for the ASE Composite
(General Index)
(Hereafter, the negative number in brackets refers to the lag of the
variable)

25
*******************************************************************************
Dependent variable is DINDEX
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DINDEX(-1) .18164 .033932 5.3532[.000]
INPT .0014880 .7740E-3 1.9225[.055]
*******************************************************************************
R-Squared .033028 R-Bar-Squared .031875
*******************************************************************************
The variable DINDEXt-1 is highly statistically significant, having a t-ratio of 5.35,
while the intercept term INPT is statistically significant at the 5.5% level (t-
ratio=1.92.
Let the first difference of the natural logarithm of the variable be INDEX,
DINDEX=ΔYt, and the intercept term denoted as INPT be α. The following is the
ARIMA (1,1,0) equation for the ASE Composite Index:
Δ Yt     1 Yt 1   t  0.014880  0.18164  Yt 1   t (6) , R2= 0.033028
(0.7740  10 3 ) (0.033932)

The plot of actual and fitted values for this equation is the following (Figure 14):

Figure 14:

26
Plot of Actual and Fitted Values for the ASE Composite Index
0.08
0.06
0.04 DINDEX
0.02
0.00
-0.02
-0.04
-0.06
Fitted
-0.08
-0.10
Observations (01/01/97 to 22/05/2000)

I now compute the forecasts for the first difference of the log of the INDEX for the
remaining 6 days7.
When comparing the predicted with the actual values one by one, the out-of-sample
forecasts are not so successful, with the prediction for the change (difference) on day
846 (15/05/2000) being closer to the actual value. Nevertheless, when trying to adopt
an investment strategy, we are mainly interested in what will happen to the index
within the forecast period. We are namely interested in knowing whether the index
will rise or fall within a given period and, if possible, we would like to know its
percentage change.

Therefore, I first take the sum of the actual and predicted values produced by the
model for the forecast period .The sum of the actual values for the forecast period is
0.023785 and the sum of the forecast values for the same period is 0.0131347
(representing the total differences in logs). In other words, the model has correctly
predicted a rise in the Composite Index during the forecast period.
The day before the start of the forecast period (12/05/2000) the price of the index was
4581.65 points, which corresponds to a log value of 8.42984. I now add the total
difference predicted by the model to this value and take the exponential to find the
predicted level of the index:
That is: e (8.42984 0.013347 )  e (8.442949 )  4642.226 points. In other words, the model
predicted that the index would rise by (4642.226-4581.65)= 60.576 points, or by
1.32%.

7
See forecast tables in the Appendix

27
However, the actual rise of the index was (4691.93-4581.65)= 110.28 points, or
2.4%.
The out-of-sample forecasts of the model underestimated the rise of the Composite
index, but they were successful in predicting 55% of it.

4.5) Estimating an ARIMA (p,d,q) model for the ASE Bank Index

28
The Greek Bank Index is a capitalisation-weighted Index of all the stocks designed to
measure the performance of the bank sector of the Greek Stock Exchange.

I find that the ARMA(2,1) specification is the most appropriate in this case. (Figure
15).

Figure 15:
An ARIMA (2,1,1) model for the ASE Bank Index
****************************************************************************
***
Dependent variable is DBANK
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DBANK(-1) .91041 .26227 3.4712[.001]
DBANK(-2) -.26180 .061840 -4.2335[.000]
INPT -.6591E-4 .3595E-3 -.18331[.855]
*******************************************************************************
R-Squared .065929 R-Bar-Squared .054105
*******************************************************************************

Parameters of the Moving Average Error Specification


*******************************************************************************
U=E+ -.73252*E(-1)
(-2.6621)[.008]
*******************************************************************************

The regressors DBANKt-1 and DBANKt-2 are highly statistically significant, having
a t-ratio of 3.47 and –4.23 respectively, while the intercept term INPT is not
statistically significant (t-ratio=-0.183 ,p-value=0.855). The MA(1) component is also
statistically significant(t-ratio=–2.66 ,p-value=0.008).

Let the first difference of the natural logarithm of the variable be DBANK=ΔYt, and
the intercept term denoted as INPT be α.

29
The following is the ARIMA (2,1,1) equation:
ΔΥt     1 Yt 1   2 Yt 2  1 t 1   t  0.000065  0.91041 Yt 1 
 0.2618Yt  2  0.73252 t 1   t (7)
The plot of actual and fitted values for this equation is the following (Figure 16):

Figure 16:
Plot of Actual and Fitted Values for the ASE Bank Index

Plot of Actual and Fitted Values


0.08
0.06
0.04 DBANK
0.02
0.00
-0.02
-0.04
-0.06
-0.08 Fitted
-0.10
5 30 55 80 105 130 155 180 205 230 245
Observations

When comparing the predicted with the actual values one by one, the out-of-sample
forecasts are somewhat successful in predicting changes (differences) on the forecast
days. Nevertheless, taking the sum of the actual and predicted values produced by the
model for the forecast period yields the following results: The sum of the actual
values for the forecast period is 0.0319123 and the sum of the forecast values for the
same period is –0.0043513 (representing the total differences in logs). In other words,
the model has incorrectly predicted a decline in the level of the Bank Index during the
forecast period.
The day before the start of the forecast period (12/05/2000) the price of the Bank
index was 8501.35 points, which corresponds to a log value of 9.04798. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Bank index:
That is: e ( 9.047980.0043513)  e ( 9.04362895)  8464.44 points. In other words, the model
predicted that the index would decline by (8501.35-8464.44)= 36.91 points, or by
0.43%.
However, the Bank index actually rose by (8777.02-8501.35)= 275.67 points, or
3.24%.

30
The out-of-sample forecasts of this model did not achieve to forecast the rise of the
Bank index.

4.6) Estimating an ARIMA (p,d,q) model for the ASE Constructions Index

31
The Greek Constructions Index is a capitalisation-weighted Index of all the stocks
designed to measure the performance of the constructions sector of the Greek Stock
Exchange.
Here I find that the ARMA(1,1) specification is the most appropriate one (Figure
17).

Figure 17:
An ARIMA (1,1,0) model for the ASE Constructions Index
*******************************************************************************
Dependent variable is DCONS
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DCONS(-1) .39844 .059352 6.7132[.000]
INPT .0011830 .0024483 .48321[.629]
*******************************************************************************
R-Squared .15865 R-Bar-Squared .15513
*******************************************************************************

The independent variable is also highly significant (t-ratio 6.713).

Let the first difference of the natural logarithm of the variable be DCONS=ΔYt, and
the intercept term denoted as INPT be α. The following is the ARIMA (1,1,0)
equation:

Δ Yt     1Yt 1   t  0.001183  0.39844  Yt 1   t , R2=0.15865 (8)


(0.0024) (0.059)

The plot of actual and fitted values for this equation is the following (Figure 18):

32
Figure 18:
Plot of Actual and Fitted Values for the ASE Constructions
Index

Plot of Actual and Fitted Values


0.10

0.05 DCONS

0.00

-0.05

-0.10
Fitted
-0.15
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results:
The sum of the actual values for the forecast period is –0.0088 and the sum of the
forecast values for the same period is 0.03528 (representing the total differences in
logs). In other words, the model has incorrectly predicted an increase in the level of
the Constructions Index during the forecast period.
The day before the start of the forecast period (12/05/2000) the price of the
Constructions index was 2756.99, which corresponds to a log value of 7.9218. I now
add the total difference predicted by the model to this value and take the exponential
to find the predicted level of the Constructions index:
That is: e ( 7.9218 0.03528)  e ( 7.95718)  2856.01 points. In other words, the model
predicted that the index would rise by (2856.01-2756.99)= 99.02 points, or by 3.59%.
However, the Constructions index actually declined by (2756.99-2732.67)= 24.32
points, or 0.88%.
The out-of-sample forecasts of this model did not achieve to forecast the decline of
the Constructions index.

4.7) Estimating an ARIMA (p,d,q) model for the ASE Industrial Index

33
The Greek Industrial Index is a capitalisation-weighted Index of all the stocks
designed to measure the performance of the industrial sector of the Greek Stock
Exchange.
I find that the ARMA(2,0) specification is the most appropriate for the Industrial
index. (Figure 19).
Figure 19:
An ARIMA (2,1,0) model for the ASE Industrial Index

Dependent variable is DIND


*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DIND(-1) .31707 .064155 4.9423[.000]
DIND(-2) -.14865 .064135 -2.3178[.021]
INPT .6703E-3 .0015482 .43298[.665]
*******************************************************************************
R-Squared .096489 R-Bar-Squared .088896
*******************************************************************************

The regressors DINDt-1 and DINDt-2 are highly statistically significant, having a t-
ratio of 4.94 and –2.31 respectively, while the intercept term INPT is not statistically
significant (t-ratio=0.43298) .

Let the first difference of the natural logarithm of the variable be DIND=ΔYt, and the
intercept term denoted as INPT be α. The following is the ARIMA (2,1,0) equation
fort the ASE Industrial Index:
Δ Yt     1 Yt 1   2 Yt  2   t  0.00067  0.31707  Yt 1  0.14865  Yt  2   t

(6)
The plot of actual and fitted values for this equation is the following (Figure 20):

Figure 20:
Plot of Actual and Fitted Values for the ASE Industrial Index

34
Plot of Actual and Fitted Values
0.08
0.06
0.04 DIND
0.02
0.00
-0.02
-0.04
-0.06
-0.08 Fitted
-0.10
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results: The sum of the actual values for the
forecast period is 0.01358 and the sum of the forecast values for the same period is
0.0067 (representing the total differences in logs). In other words, the model has
correctly predicted an increase in the level of the Industrial index during the forecast
period.

The day before the start of the forecast period (12/05/2000) the price of the Industrial
index was 2812.48 points, which corresponds to a log value of 7.94182. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Industrial index:

That is: e ( 7.94182 0.0067 )  e ( 7.94854)  2831.45 points. In other words, the model
predicted that the index would rise by (2831.45-2812.48)= 18.97 points, or by 0.67%.
However, the Industrial index actually rose by (2850.95-2812.48)= 38.47 points, or
1.37%.
The out-of-sample forecasts of this model were successful in predicting 49.32% of the
rise in the Industrial index.

35
4.8) Estimating an ARIMA (p,d,q) model for the ASE Holdings Index

The Greek Holdings Index is a capitalisation-weighted Index of all the stocks designed
to measure the performance of the holdings sector of the Greek Stock Exchange.

The appropriate model for this case is the following: (Figure 21).

Figure 21:
An ARIMA (1,1,2) model for the ASE Holdings Index

Dependent variable is DHOLS


*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DHOLS(-1) -.80400 .12478 -6.4431[.000]
INPT .0036548 .0045661 .80041[.424]
*******************************************************************************
R-Squared .13132 R-Bar-Squared .12033

Parameters of the Moving Average Error Specification


*******************************************************************************
U=E+ 1.2524*E(-1)+ .34461*E(-2)
( 8.9627)[.000] ( 4.0169)[.000]

The independent variable DHOLSt-1 is highly statistically significant, having a t-ratio


of –6.41, while the intercept term INPT is not statistically significant (t-
ratio=0.80<2). The moving average components are both statistically significant (t-
ratios 8.96 and 4.01).

Let the first difference of the natural logarithm of the variable be DHOLS=ΔYt, and
the intercept term denoted as INPT be α. The following is the ARIMA (1,1,2)
equation:
Δ Yt     1 Yt 1  1 t 1   2  t 2   t 
 0.0036  0.804  Yt 1  1.25424 t 1  0.3446 t  2   t (9)

36
The plot of actual and fitted values for this equation is the following (Figure 22):
Figure 22:
Plot of Actual and Fitted Values for the ASE Holdings Index

Plot of Actual and Fitted Values


0.08
0.06
0.04 DHOLS
0.02
0.00
-0.02
-0.04
-0.06
-0.08 Fitted
-0.10
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results:
The sum of the actual values for the forecast period is 0.0618 and the sum of the
forecast values for the same period is 0.0172572 (representing the total differences in
logs). In other words, the model has correctly predicted an increase in the level of the
Holdings Index during the forecast period.
The day before the start of the forecast period (12/05/2000) the price of the Holdings
index was 5212.3 points, which corresponds to a log value of 8.55877. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Holdings index in the end of the forecast period:
That is: e (8.55877 0.017252)  e (8.5760337)  5303.03 points. In other words, the model
predicted that the index would rise by (5303.03-5212.3)= 90.73 points, or by 1.74%.
However, the Holdings index actually rose by (5544.5212.3)= 332.31 points, or
6.37%.
The out-of-sample forecasts of this model did forecast the rise of the Holdings index,
but they only managed to forecast a fraction of it (27.30%).

37
4.9) Estimating an ARIMA (p,d,q) model for the ASE Insurance Index
The Greek Insurance Index is a capitalisation-weighted Index of all the stocks
designed to measure the performance of the insurance sector of the Greek Stock
Exchange.

I find that the ARMA(1,0) specification is the most appropriate for the Insurance

index. (Figure 23).

Figure 23:

An ARIMA (1,1,0) model for the ASE Insurance Index

Dependent variable is DINS


*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DINS(-1) .18337 .063656 2.8807[.004]
INPT .8532E-3 .0017753 .48061[.631]
*******************************************************************************
R-Squared .033556 R-Bar-Squared .029512
*******************************************************************************

The regressor DINSt-1 is statistically significant, having a t-ratio of 2.88, while the
intercept term INPT is not statistically significant (t-ratio=0.48, p-value=0.631).

Let the first difference of the natural logarithm of the variable be DINS=ΔYt, and the
intercept term denoted as INPT be α. The following is the ARIMA (1,1,0) equation:
Δ Yt     1 Yt 1   t  0.00085  0.18337  Yt 1   t (10)
The plot of actual and fitted values for this equation is the following (Figure 24):

Figure 24:

38
Plot of Actual and Fitted Values for the ASE Insurance
Index

Plot of Actual and Fitted Values


0.10

0.05 DINS

0.00

-0.05

-0.10
Fitted
-0.15
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results: The sum of the actual values for the
forecast period is –0.0033 and the sum of the forecast values for the same period is –
0.0108599(representing the total differences in logs). In other words, the model has
incorrectly predicted a rise in the Insurance Index during the forecast period.

The day before the start of the forecast period (12/05/2000) the price of the Insurance
index was 3019.57 points, which corresponds to a log value of 8.01286. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Insurance index:

That is: e (8.01286 0.0108599)  e (8.0237296)  3052.541 points. In other words, the model
predicted that the index would rise by (3052.54-3019.57)= 32.57 points, or by 1.09%.
However, the Insurance index actually declined by (3019.57-2920.41)= 99.16 points,
or 3.28%.

The out-of-sample forecasts of this model did not achieve to forecast the decline of
the Insurance index.

39
4.10) Estimating an ARIMA (p,d,q) model for the ASE Investment Index
The Greek Investment Index is a capitalisation-weighted Index of all the stocks
designed to measure the performance of the investment sector of the Greek Stock
Exchange.

I find that the ARMA(1,0) specification is the best for the Investment index (Figure

25).

Figure 25:
An ARIMA (1,1,0) model for the ASE Investment Index
Dependent variable is DINV
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DINV(-1) .28297 .062322 4.5404[.000]
INPT .0012537 .0018091 .69300[.489]
*******************************************************************************
R-Squared .079406 R-Bar-Squared .075554
*******************************************************************************

The regressor DINVt-1 is highly statistically significant, having a t-ratio of 4.54, while
the intercept term INPT is not statistically significant (t-ratio=0.639<2).
Let the first difference of the natural logarithm of the variable be DINV=ΔYt, and the
intercept term denoted as INPT be α. The following is the ARIMA (1,1,0) equation:
Δ Yt     1 Yt 1   t  0.0012  0.28297  Yt 1   t (11)

The plot of actual and fitted values for this equation is the following (Figure 26):

40
Figure 26:

Plot of Actual and Fitted Values for the ASE Investment

Index

Plot of Actual and Fitted Values


0.08
0.06
0.04 DINV
0.02
0.00
-0.02
-0.04
-0.06
-0.08 Fitted
-0.10
5 30 55 80 105 130 155 180 205 230 245
Observations

I take the sum of the differences the actual and predicted values produced by the
model for the forecast period and come up with the following results: The sum of the
actual values for the forecast period is 0.02371 and the sum of the forecast values for
the same period is 0.0285078 (representing the total differences in logs). In other
words, the model has predicted the rise in the Investment Index during the forecast
period.
The day before the start of the forecast period (12/05/2000) the price of the
Investment Index was 1956.85 points, which corresponds to a log value of 7.579. I
now add the total difference predicted by the model to this value and take the
exponential to find the predicted level of the Investment Index:
That is: e ( 7.579 0.02371)  e ( 7.607599 )  2013.438 points. In other words, the model
predicted that the level of the Index would increase by (2013.438-1956.85)= 56.58
points, or by 2.89%.
Indeed, the Investment Index rose by (8777.02-8501.35)= 46.95 points, or 2.40%.
The out-of-sample forecasts of this model achieved to forecast 120.52% of the rise in
the Investment Index. The forecasts may have overestimated that rise by 20.52%, but
they were very successful this time.

41
4.11) Estimating an ARIMA (p,d,q) model for the ASE Leasing Index
The Greek Leasing Index is a capitalisation-weighted Index of all the stocks designed
to measure the performance of the leasing sector of the Greek Stock Exchange.

I find that the ARMA (2,0) specification best describes the Leasing index. (Figure
27).

Figure 27:
An ARIMA (2,1,0) model for the ASE Leasing Index

Dependent variable is DLEAS


*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DLEAS(-1) .37570 .064226 5.8496[.000]
DLEAS(-2) -.16992 .064330 -2.6413[.009]
INPT .0015263 .0021771 .70108[.484]
*******************************************************************************
R-Squared .12798 R-Bar-Squared .12065
*******************************************************************************

The regressors DLEASt-1 and DLEASt-2 are highly statistically significant, having t-
ratios of 5.84 and –2.64 respectively, while the intercept term INPT is not statistically
significant (t-ratio=0.70 ,p-value=0.484).

Let the first difference of the natural logarithm of the variable be DLEAS=ΔYt, and
the intercept term denoted as INPT be α. The following is the ARIMA (2,1,0)
equation:
Δ Yt     1 Yt 1   2 Yt  2   t  0.0015  0.3757  Yt 1  0.16992Yt  2   t

(12)

42
The plot of actual and fitted values for this equation is the following (Figure 28):

Figure 28:
Plot of Actual and Fitted Values for the ASE Leasing Index

Plot of Actual and Fitted Values


0.10

0.05 DLEAS

0.00

-0.05

-0.10
Fitted
-0.15
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results: The sum of the actual values for the
forecast period is –0.04616 and the sum of the forecast values for the same period is –
0.0196 (representing the total differences in logs). In other words, the model did not
predict the subsequent decline in the Leasing Index during the forecast period.

The day before the start of the forecast period (12/05/2000) the price of the Leasing
index was 1063.62 points, which corresponds to a log value of 6.96943. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Leasing Index:
That is: e ( 6.96943 0.0196 )  e ( 6.9891)  1084.78 points. In other words, the model
predicted that the Index would increase by (1084.78-1063.62)= 21.15 points, or by
1.98%.
However, the Leasing Index actually declined by (1063.62-1015.63)= 47.99 points,
or 4.51%.
The out-of-sample forecasts of this model did not succeed in forecasting the decline of
the Leasing index.

43
4.12) Estimating an ARIMA (p,d,q) model for the ASE Parallel Index

The Greek Parallel Index is a capitalisation-weighted Index of all the stocks designed
to measure the performance of the Parallel sector of the Greek Stock Exchange.

I find that the Parallel index is best described by the ARMA(2,0) specification.
(Figure 29).

Figure 29:
An ARIMA (2,1,0) model for the ASE Parallel Index
Dependent variable is DPAR
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DPAR(-1) .49127 .064311 7.6390[.000]
DPAR(-2) -.13395 .064330 -2.0822[.038]
INPT .0014214 .0025111 .56605[.572]
*******************************************************************************
R-Squared .20178 R-Bar-Squared .19507
*******************************************************************************

The regressors DPARt-1 and DPARt-2 are highly statistically significant, having a t-
ratio of 7.63 and –4.23 respectively, while the intercept term INPT is not statistically
significant (t-ratio=0.566 ,p-value=0.572).
Therefore, the ARIMA(2,1,0) specification best describes the variable PAR.
Let the first difference of the natural logarithm of the variable be DPAR =ΔYt , and
the intercept term denoted as INPT be α .
The following is the ARIMA (2,1,0) equation for the ASE Parallel Index:
Δ Yt     1 Yt 1   2 Yt 2   t  0.00142  0.49127  Yt 1  0.13395  Yt  2   t

(13)

44
The plot of actual and fitted values for this equation is the following (Figure 30):
Figure 30:
Plot of Actual and Fitted Values for the ASE Parallel Index

Plot of Actual and Fitted Values


0.10

0.05 DPAR

0.00

-0.05

-0.10
Fitted
-0.15
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results: The sum of the actual values for the
forecast period is 0.1106143 and the sum of the forecast values for the same period is
0.0311384 (representing the total differences in logs). In other words, the model has
correctly predicted an increase in the level of the Parallel Index during the forecast
period.
The day before the start of the forecast period (12/05/2000) the price of the Parallel
index was 901.82 points, which corresponds to a log value of 6.80441. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Parallel index:
That is: e ( 6.80441 0.0311384)  e ( 6.83555)  930.34 points. In other words, the model
predicted that the Index would increase by (930.34-901.82)= 28.52 points, or by
3.16%.
However, the actual increase of the Parallel Index was much greater, namely
(1007.3-901.82)= 105.48 points, or 11.69%.

45
The out-of-sample forecasts of this model underestimated the rise of the Parallel
index, but succeeded in forecasting 27.04% of it.

4.13) Estimating an ARIMA (p,d,q) model for the ASE Various Index
The Greek Various Index is a capitalisation-weighted Index of all the stocks designed
to measure the performance of the Various sector of the Greek Stock Exchange.

I find that the ARMA(0,1) specification is the best for the Various index (Figure

31).

Figure 31:
An ARIMA (0,1,1) model for the ASE Various Index

Dependent variable is DVAR


*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
INPT .0017009 .0023719 .71711[.474]
*******************************************************************************
R-Squared .10170 R-Bar-Squared .097938
*******************************************************************************

Parameters of the Moving Average Error Specification


*******************************************************************************
U=E+ .34234*E(-1)
( 5.6066)[.000]

While the intercept term INPT is not statistically significant (t-ratio=-0.71 ,p-
value=0.474), the MA(1) component is highly statistically significant(t-ratio=5.60 ,p-
value=0.000).
Let the first difference of the natural logarithm of the variable be DVAR =ΔYt, and the
intercept term denoted as INPT be α. The following is the ARIMA (0,1,1) equation:
Δ Yt    1 t 1   t  0.0017  0.34234 t 1   t (14)

46
The plot of actual and fitted values for this equation is the following (Figure 32):

Figure 32:

Plot of Actual and Fitted Values for the ASE Various Index

Plot of Actual and Fitted Values


0.10

0.05 DVAR

0.00

-0.05

-0.10
Fitted
-0.15
5 30 55 80 105 130 155 180 205 230 245
Observations

Taking the sum of the actual and predicted values produced by the model for the
forecast period yields the following results: The sum of the actual values for the
forecast period is –0.00119 and the sum of the forecast values for the same period is
0.02329 (representing the total differences in logs). In other words, the model has
incorrectly predicted an increase in the level of the Various Index during the forecast
period.
The day before the start of the forecast period (12/05/2000) the price of the Various
index was 5068.99 points, which corresponds to a log value of 8.53089. I now add the
total difference predicted by the model to this value and take the exponential to find
the predicted level of the Various Index:
That is: e (8.53089 0.00119 )  e (8.554196 )  5188.48 points. In other words, the model
predicted that the index would rise by (5188.48-5068.99)= 119.49 points, or by
2.35%.
However, the Various index actually declined by (5068.99-5008.8)= 60.19 points, or
1.18%.
In this case, the out-of-sample forecasts of this model did not achieve to forecast the
decline of the Various Index.

47
4.14) Summary of results

The following Table summarises the results:


Figure 33:

Indices ARIMA Equation Directional forecast result

Composite Yt  0.014880  0.18164  Yt 1   t Success

Bank Y t 0.000065  0.91041  Yt 1  0.2618Yt  2  0.73252 t 1   t

Failure

Constructions Yt  0.001183  0.39844  Yt 1   t


Failure

Industrial Yt  0.00067  0.31707  Yt 1  0.14865  Yt  2   t

Success

Holdings Yt  0.0036  0.804  Yt 1  1.25424 t 1  0.3446 t  2   t

Success

Insurance Yt  0.00085  0.18337  Yt 1   t

Failure

Investment Yt  0.0012  0.28297  Yt 1   t

Success

48
Leasing Yt  0.0015  0.3757  Yt 1  0.16992Yt  2   t

Failure

Parallel Yt  0.00142  0.49127  Yt 1  0.13395  Yt  2   t

Success

Various Yt  0.0017  0.34234 t 1   t


Failure

Chapter 5

MODELLING VOLATILITY IN THE ASE

5.1) Univariate GARCH and E-GARCH8

As financial markets have become more volatile in the last two decades and because
of the growing importance of options in financial risk management there has
developed a growing interest in the volatility of financial markets. Mandlebrot(1963)
noted that large changes in asset prices were followed by large changes of either sign,
while small changes were followed by small changes. In particular, financial variables
often exhibit quiet periods followed by volatile periods, that is volatility is not
constant but time-varying. Engle coined the term autoregressive conditional
heteroscedasticity (ARCH).

Bollerslev (1986) generalised the ARCH model by the inclusion of lagged values of
the conditional variance in order to avoid the long structure of the ARCH(q)
developed by Engle (1982). Thus the generalized ARCH or GARCH (p,q) specifies

8
Selective quotation from Watsham&Paramore (1997), "Quantitative Methods for Finance", First
Edition, Thomson Business Press

49
the conditional variance to be a linear combination of p lags of the squared residuals
from the conditional mean equation and q lags of the conditional variance as follows:

p q
ht2   0    i  t2i    i ht2i (15)
i 1 i 1

where β and γ are constrained to be non-negative in order to avoid the possibility of


negative conditional variances.

This is the GARCH equation. What it is saying is that the current value of the
conditional variance is a function of a constant, some value of the squared residual
from the conditional mean equation, plus some value of the previous conditional
variance. For example, if the conditional variance is best described by a GARCH (1,1)
equation it will be because the series is AR(1), i.e. the epsilons lagged 1, and has one
lag of the conditional variance.
In the GARCH (p,q) model, the conditional variance depends upon the size of the
residuals , not on their sign. Yet there is evidence, e.g. Black (1976), that volatility
and asset returns are negatively correlated. Thus when security prices rise, giving
positive returns, volatility falls, and when asset prices fall giving negative returns,
volatility rises. Indeed casual empiricism shows that periods of high volatility are
associated with falls in security markets and periods of low volatility are associated
with rises in markets.

Nelson (1991) developed E-GARCH to accommodate such a situation. It is as


follows:

p
 t i p
 t i q
log ht2   0    i   i    i log ht2i (16)
i 1 ht i i 1 ht i i 1

The εs are included in this equation both as raw observations, ε, and in modulus form
 , where the modulus of ε is simply its size, i.e. ignoring the signs. Thus E-
GARCH models the conditional variance as an asymmetric function of the εs. It
allows positive and negative values to have different impacts on volatility. The
logarithmic formulation accommodates negative residuals without the conditional

50
variance itself being negative. The conditional standard deviations ( ht i ) are
included as denominators on the right hand side.

5.2) An exponential GARCH Model for the ASE Composite Index


851 daily observations of the ASE Composite Index from 01/01/1997 to 24/05/2000
are used to estimate the model.
As estimated earlier, the model that best describes the Composite Index from an
ARIMA standpoint is an ARIMA (1,1,0), or an AR(1) model for the rate of change
(first difference) of the variable INDEX , denoted as DINDEX. It can be expressed as
follows:
Δlog(INDEX)=  0   1  log( INDEX ) t 1  u t , or

DINDEX =  0   1 ( DINDEX ) t 1  u t
I also test for ARCH effects in the conditional variance of u t , ( ht  Var (u t  t 1 )).
2

The ARCH(q) specification for ht2 is given by


ht2   0  1u t21   2 u t2 2  ...   q u t2 q

The null hypothesis of ‘no ARCH effect’ is

H 0 : 1   2  ...   q  0

to be tested against the alternative hypothesis that H 1 : 1  0,  2  0,...,  q  0 .

51
The test involves running a regression of squared OLS residuals from the regression
(above) on lagged squared residuals :
The LM version of the test yields a statistic of 32.31, which is well above the 95 per

cent critical value of  12 , and hence rejects the hypothesis that there are no ARCH
effects in the variable DINDEX. The same conclusion is also reached if one considers
the F version of the test. Tests of higher order ARCH effects also yield similar results.
Of course, as with all diagnostic tests, rejection of the null hypothesis that there are no
ARCH effects, does not necessarily imply that the conditional variance of DINDEX is
variable. This can happen particularly if the disturbances, u t , are serially
uncorrelated. But in the present application, running the LM tests for serial correlation
makes it clear that the hypothesis that u t s are serially uncorrelated cannot be
rejected, and therefore there may well be important ARCH effects in the data .

5.3) Fitting the model

By trial and error, i.e. by comparing the values of the model selection criteria (AIC
and SBC) for all possible GARCH specifications I came up with the conclusion that
an exponential GARCH(1,1) model assuming a t-distribution for the errors, u t , best
describes the ASE Composite Index (Figure 34):

Figure 34:
An E-GARCH model for the ASE Composite index

Exponential GARCH(1,1) assuming a t distribution


*******************************************************************************
Dependent variable is DINDEX
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DINDEX(-1) .19576 .036113 5.4207[.000]
INPT .0013352 .6525E-3 2.0462[.041]
*******************************************************************************
R-Squared .032680 R-Bar-Squared .028063

Parameters of the Conditional Heteroscedastic Model


Explaining the Logarithm of H-SQ, the Conditional Variance of the Error Term
*******************************************************************************
Coefficient Asymptotic Standard Error
Constant -1.5518 .39863
(E/H)(- 1) -.15552 .045566
ABS(E/H)(- 1)-MEU .43258 .069264
LOG(H-SQ(- 1)) .79924 .051538
D.F. of t-Dist. 6.1104 1.1871
*******************************************************************************

52
H stands for the conditional standard error of the error term.
E stands for the error term.
MEU stands for the expectation of the absolute value of the standardized
disturbance term.

The exponential GARCH (1,1), or E-GARCH (1,1) model is defined by:

 u t 1  u 
log ht   0   1 
2
   1  t 1     1 log ht21 , (17)
 
 ht 1   ht 1 

where   E  u t 1 / ht 1  . The above specification has a well-defined conditional

variance, ht  V (u t  t 1 ) , for all parameter values  0 ,  1 ,  1 . However, for the


2

process to be stable is still required that 1  1 9.

All GARCH parameters are significant at the 95% level. The extent to which the t-
distribution has been successful in dealing with the non-normal errors can be assessed
graphically. What follows is the histogram of the scaled residuals (defined by u t / ht ):

Figure 35:
Histogram of scaled residuals and the t-distribution density

Histogram of Scaled Residuals and the t-distribution Density


0.4

0.3
Frequency

0.2

0.1

0.0
-4.618 -3.082 -1.545 -0.008372 1.528 3.065 4.602 6.138
DINDEX

Except for a possible ‘outlier’ to the right of the graph, the t-distribution seems to
provide a reasonable fit for the distribution of scaled residuals. The apparent outlier
probably refers to the mini-crisis that broke out in September 1999.

9
See Pesaran&Pesaran (1997), "Working with Microfit for Windows 4.0", Oxford University Press,
Oxford 1997

53
Substituting the estimated values from figure 34 into (17) yields the following
GARCH equation for the ASE Composite Index:
(Assuming DINDEX= Yt ):
Δ Yt  0.0013352  0.19756  Yt 1 , log

e  e 
ht2  1.5518  0.15552   t 1   0.43258   t 1  0.75121  0.79924  log ht21 
 ht 1   ht 1 

+0.79924 (18)

However, the conditional variance is not defined during the forecast period. This is
probably because the values of the GARCH parameters are such that the conditional
variance or the conditional standard errors become very small or negative.
It is therefore not possible to produce volatility forecasts.
Figure 36:

Estimated values of ht for the ASE Composite Index

Plot of the conditinal S.E.'s of GARCH Regression


0.06

0.05

0.04
DINDEX
0.03

0.02

0.01
845
Observations

Figure 36 shows that the Greek stock market exhibits very high volatility. Investors
who trade options could exploit the latter. Those investors could adopt an investment
strategy called “Long Volatility Trade” (Connolly, 1997). The ‘Long Volatility Trade’
is an investment strategy based on buying and selling of options, where profit is
conditional upon volatility in the stock market. If the stock market experiences low
volatility, then the investor loses money. However, if the stock market is characterised
by high volatility, then the investor makes a profit irrespective of whether the market

54
rises or falls. Therefore, there exists an important investment opportunity of this kind
in the Greek stock market.
Furthermore, a confirmation of the statement that periods of high volatility are
associated with falls in security markets and periods of low volatility are associated
with rises in markets can be seen below. I use the part of the diagram above (Figure
36) that refers to the last year of observations and plot it together with the actual
movement of the Composite Index during that period (appropriately scaled so that
they can be comparable):

Indeed, periods where volatility was low were associated with rises in the Composite
Index and periods where volatility was high were associated with falls (Figure 37).

Figure 37:

Relationship between volatility and the stock


market
0.06

0.05 Composite Index


0.04

0.03

0.02 Volatility
(Conditional
0.01 standard errors of
GARCH
0.00 regression)
1 21 41 61 81 101 121 141 161 181 201 221 241 251
(Part of first diagram) Observations from 24/05/99 to
22/05/2000

55
Chapter 6

LOGIT MODELS FOR THE ASE BANK INDEX

In this part I examine whether it is possible to forecast the probability of an 1%


increase or 1% decline in the level of the Athens Stock Exchange Bank Index using
lagged values of itself and the other indices (Constructions, Holdings, Leasing,
Industrial, Insurance, Investment, Parallel and Various). This index consists of many
stocks of high capitalisation (often called blue chips).

In order to estimate a Logit Model, the dependent variable y i must contain only ones
and zeros. Maximum Likelihood (ML) estimates of the coefficients will be computed
assuming the logistic probability model10:

e xi
Pr( y i  1)  (xi )  , i  1,2..., n (19)
1  e xi
where   (1,  2 ,... k ) is the k  1 vector of unknown coefficients, and xi is a
k  1 vector of explanatory variables, possibly containing a vector of ones ( the

intercept term). The effect of a unit change in the jth element of x i is given by

10
See Pesaran&Pesaran (1997), "Working with Microfit for Windows 4.0", Oxford University Press,
Oxford 1997

56
 Pr( y i  1)
  j  i (1   i ), for j=1, 2,…,k and i  1,2,..., n
xij

where  i  ( xi ) (20) . The ML estimation is carried out using the iterative
method of scoring.

I use 251 daily observations of the nine indices (Bank, Constructions, Holdings,
Leasing, Industrial, Insurance, Investment, Parallel and Various) from 24/05/1999 to
22/05/2000 to estimate the Logit models (364 day holding period).
The sample period for the models spans from observations 1 to 240.I am keeping 11
observations in the end for forecasting purposes.
I estimated the models using up to nine lags for each of the explanatory variables. I
then ignored some lags that were highly insignificant and re-estimated several times,
taking into account the values of the maximized log-likelihood function, and the
values of the different model selection criteria, namely the AIC, the SBC, and the
HQC (the Hannan-Quinn criterion). The models presented below best describe the
variables PBANK1 and PBANK2.

6.1) Modelling the probability of 1 per cent or larger decline in the level
of the ASE Bank Index

The dependent variable PBANK1 takes the value of one if the Bank Index declines by
1 percent or more, and zero otherwise. The explanatory variables are the following:
DBANK, DHOLS, DLEAS, DCONS, DINS, DIND, DINV, DPAR, DVAR, namely
the rate of change (first difference) in the natural logs of the nine indices.

57
Figure 38:
Modelling the probability of a decline in the level of the ASE Bank index by one percent or more

Logit Maximum Likelihood Estimation


*****************************************************************************
**
Dependent variable is PBANK1

*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DCONS(-4) -17.0042 5.5775 -3.0487[.003]
DHOLS(-4) 18.6265 7.4286 2.5074[.013]
DHOLS(-8) 11.9127 5.9587 1.9992[.047]
DBANK(-1) -19.8889 7.3482 -2.7066[.007]
DBANK(-3) 12.3171 7.4488 1.6536[.100]
DBANK(-7) 9.3926 7.1742 1.3092[.192]
DBANK(-8) -16.9048 8.3078 -2.0348[.043]
DINS(-6) -18.4840 7.1877 -2.5716[.011]
DINV(-2) -16.2124 8.5846 -1.8885[.060]
DINV(-6) 16.9189 6.8166 2.4820[.014]
DIND(-2) 29.2455 13.6748 2.1387[.034]
DPAR(-2) 13.4700 6.1509 2.1899[.030]
DVAR(-2) -24.4562 11.2992 -2.1644[.032]
INPT -.37170 .15057 -2.4686[.014]

58
*******************************************************************************
Factor for the calculation of marginal effects = .24282
Goodness of fit = .68261
Pesaran-Timmermann test statistic = -8.9133[.000]
*******************************************************************************
The estimated Logit equation is the following:
PBANK1 = -0.37170 -17.0042* DCONS t-4 + 18.6265* DHOLSt-4 + 11.9127*
DHOLSt-8 -19.8889* DBANKt-1 + 12.3171* DBANKt-3 + 9.3926* DBANKt-7
-16.9048* DBANKt-8 -18.4840* DINSt-6 -16.2124* DINVt-2 + 16.9189* DINVt-6 +
29.2455* DINDt-2+ 13.4700* DPARt-2 -24.4562* DVARt-2 (21)

The model fits the data reasonably well. The goodness of fit measure, computed as the
proportion of observations with correctly predicted values of PBANK1, is 68.26%.

With the exception of two variables (DBANK t-3 and DINVt-2) all the other variables
including the intercept term denoted as INPT are statistically significant at the 5%
level.
The variables DHOLSt-4, DHOLSt-8, DBANKt-3, DBANKt-7, DINVt-6, DINDt-2 and
DPARt-2 have a positive sign, that is they have a positive effect on the probability of a
decline of the Bank Index by 1 percent or more. On the other hand, the rest of the
explanatory variables, namely DCONSt-4, DBANKt-1, DBANKt-8, DINSt-6, DINVt-2,
DINDt-2 and DVARt-2, have a negative effect on the probability of a decline of the
Bank Index.

To estimate the marginal effect of a unit change in, say, the DHOLS t-4 variable,
computed at sample means on the probability of the decline of the Bank Index by 1
percent or more, I multiply the factor 0.24882 given in the second part of the table
(Figure 38) by the coefficient of DHOLSt-4, using 0.24882*18.6265= 4.634.
Similarly, the marginal effect of the DCONSt-4 variable on the probability of a decline
in the Bank Index by 1 percent or more (evaluated at sample means), is given by
0.24882*(-17.0042)= -4.230.

59
Figure 39:
Plot of Actual Values and Fitted Probabilities for the Logit
Model 1

Plot of Actual Values and Fitted Probabilities


1.0

0.8 PBANK1

0.6

0.4

0.2
Fitted
0.0
11 31 51 71 91 111 131 151 171 191 211 231
Observations from 24/05/99 to 12/05/2000

Forecasts of the probability of a 1 (or more) percent decline of the Bank Index for the
remaining 11 days are presented in the following Table (Figure 40):
Figure 40:
Out-of-sample forecasts of the probability of a decline of the Bank index by one percent or more

Observation Actual Predicted Probability Predicted


241 0.00 .25709 0.00
242 1.0000 .26795 0.00
243 0.00 .37951 0.00
244 0.00 .32704 0.00
245 0.00 .55269 1.0000

60
246 0.00 .54329 1.0000
247 0.00 .066586 0.00
248 0.00 .31861 0.00
249 0.00 .70572 1.0000
250 0.00 .85166 1.0000
251 1.0000 .60951 1.0000
*******************************************************************************
Summary Statistics for Residuals and Prediction Errors
*******************************************************************************

Goodness of fit .68261 .54545


Pesaran-Timmermann Stat. -8.9133[.000] -3.9668[.000]
*******************************************************************************

The second part of Figure 40 gives two summary statistics for the estimation and
prediction samples. As is to be expected, the fitted values match the actual
observations much better over the estimation sample as compared to the prediction
sample. The Pesaran-Timmerman statistic is equal to –3.966 over the forecast sample
which is still statistically significant, but much less so than over the estimation
sample.

6.2): Modelling the probability of 1 per cent or greater increase in the


level of the ASE Bank Index

The dependent variable PBANK2 takes the value of one if the Bank Index increases
by 1 percent or more, and zero otherwise.

Figure 41:
Modelling the probability of an increase in the level of the Bank index by one percent or more

Logit Maximum Likelihood Estimation


*****************************************************************************
**
Dependent variable is PBANK2
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
DLEAS(-7) 1.5932 2.5013 .63695[.525]

61
DLEAS(-8) 4.2098 5.0367 .83583[.404]
DCONS(-4) 7.2892 4.7026 1.5500[.123]
DHOLS(-8) -16.5678 6.8215 -2.4288[.016]
DINS(-4) -14.8883 6.6957 -2.2236[.027]
DINS(-9) 9.5741 5.7231 1.6729[.096]
DIND(-5) 6.4045 6.4360 .99511[.321]
INPT -.96002 .15467 -6.2071[.000]
*******************************************************************************
Factor for the calculation of marginal effects = .19866
Goodness of fit = .72174
Pesaran-Timmermann test statistic = -49.8902[.000]
*******************************************************************************

The estimated Logit equation is the following:


PBANK2 = -0.09602 + 1.5932* DLEASt-7 + 4.2098* DLEASt-8 + 7.2892* DCONSt-4
-16.5678* DHOLSt-8 -14.8883* DINSt-4 + 9.5741* DINSt-9 + 6.4045* DINDt-5 (22)

The model fits the data reasonably well. The goodness of fit measure, computed as the
proportion of observations with correctly predicted values of PBANK2, is 72.17%.

However, with the exception of two variables (DHOLS t-8 and DINSt-4) and the
intercept term, the rest of the variables are not significant at the 5% level.
The variables DLEASt-7, DLEASt-8, DCONSt-4, DINSt-9, and DINVt-5 have a positive
sign, that is they have a positive effect on the probability of an increase in the level of
the Bank index by 1 percent or more. On the other hand, the remaining two
explanatory variables, namely DHOLSt-8 and DINSt-4, have a negative effect on the
probability of an increase in the level of the Bank Index by the specified amount.

To estimate the marginal effect of a unit change in, say, the DINS t-9 variable, computed
at sample means on the probability of an increase in the Bank Index by 1 percent or
more, I multiply the factor 0.19866 given in the second part of the table (Figure 72)
by the coefficient of DINS t-4, using 0.19866*9.5741= 1.901. Similarly, the marginal
effect of the DHOLSt-8 variable on the probability of an increase in the level of the

62
Bank Index by 1 percent or more (evaluated at sample means), is given by 0.19866*(-
16.5678)= -3.293.

Figure 42:
Plot of Actual Values and Fitted Probabilities for the Logit Model 2

Plot of Actual Values and Fitted Probabilities


1.0

0.8 PBANK2

0.6

0.4

0.2
Fitted
0.0
11 31 51 71 91 111 131 151 171 191 211 231
Observations from 24/05/99 to 12/05/2000

Forecasts of the probability of a 1 (or more) percent decline of the Bank Index for the
remaining 11 days are presented in the following Table (Figure 43):
Figure 43:
Out-of-sample forecasts of the probability of a rise of the Bank index by one percent or more
Actual and Forecast Values of Regression
*******************************************************************************
Observation Actual Predicted Probability Predicted
241 0.00 .32482 0.00
242 0.00 .42013 0.00
243 0.00 .30207 0.00
244 0.00 .22259 0.00

63
245 0.00 .21839 0.00
246 1.0000 .32075 0.00
247 1.0000 .34248 0.00
248 0.00 .33519 0.00
249 0.00 .18472 0.00
250 0.00 .27496 0.00
251 0.00 .32765 0.00
Summary Statistics for Residuals and Prediction Errors
Goodness of fit .72174 .81818
Pesaran-Timmermann Stat. -49.8902[.000] *NONE*
*******************************************************************************
The second part of Figure 43 gives two summary statistics for the estimation and
prediction samples. Oddly enough, the fitted values match the actual observations
worse over the estimation sample as compared to the prediction sample. The Pesaran-
Timmerman statistic is highly significant (–49.89) over the estimation sample, but is
not defined over the forecast sample.

6.2): Comparison between the models


When comparing those two models, one can observe the following:
The first one has 12 explanatory variables, 10 of which are statistically significant at
the 5% level.
The second one is more parsimonious, but only two out of the 7 explanatory variables
are significant. It is also noteworthy that those two explanatory variables that are
statistically significant have a minus sign, that is they have a negative effect on the
probability of a 1% increase in the level of the Bank Index.

Despite the goodness of fit in the second case, it appears to be more difficult to
predict an increase rather than a decline in the level of the Bank Index.

64
Chapter 7

A MEASURE OF PERSISTENCE OF SHOCKS

One of the important features of unit root processes lies in the fact that the effects of
shocks on these series (or random deviations from their trend) do not die out. In the
case of random walk models the long-run impact of the shocks is unity. But for more
general I(1) processes this long-run impact could be more or less than unity. The most
satisfactory overall measure of persistence is the value of the spectral density of the
first-differences of the series evaluated at zero frequency, and then appropriately
scaled. In the case of the ARIMA (p,1,q) process

xt    1 x1  ...   p xt  p   t  1 t 1  ..   q  t  q (23),


where  t ~iid(0,σ2). The spectral density of Δxt at zero frequency is given by

2
2  1  1   2  ...   q 
f x (0)    (24)
  1      ...   
 1 2 q 

The measure proposed by Campbell and Mankiw 11(1987) is given by

11
According to Pesaran (1997), this is a precise measure of persistence

65
1
 f (0)  2 1  1   2  ...   q
Pcm   x 2   (23)
   1  1   2  ...   q

The values of the spectral density at zero frequency for the ASE Composite Index and
the rest of the indices will be estimated using the Campbell and Mankiw measure.
Namely, I compute Pcm by replacing the unknown parameters
1 ,  2 ,...,  q , 1 ,  2 ,...,  q in (25) by their ML estimates. These estimates are
already known from Chapter 4, where I estimated an ARIMA model for each of the
indices:

7.1) The Composite Index


The Pcm measure of persistence of the Composite Index for the ARIMA (1,1,0)
specification is given by:
1 1
Pˆcm    1.221956 (0.050) (26)
1  1 1  0.18164

7.2) The Bank Index

The Pcm measure of persistence of the Bank Index for the ARIMA (2,1,1)
specification is given by:

1  1 1  0.73252
Pˆcm    0.761205 (0.25) (27)
1  1   2 1  0.91041  0.2618

7.3) The Constructions Index


The Pcm measure of persistence of the Constructions Index for the ARIMA
(1,1,0) specification is given by:
1 1
Pˆcm    1.6624 (0.16) (28)
1  1 1  0.39844

66
7.4) The Industrial Index
The Pcm measure of persistence of the Industrial Index for the ARIMA (2,1,0)
specification is given by:
1 1
Pˆcm    1.20253 (0.11) (29)
1  1   2 1  0.31707  0.14865

7.5) The Holdings Index


The Pcm measure of persistence of the Holdings Index for the ARIMA (1,1,2)
specification is given by:

1  1   2 1  0.2524  0.34461
Pˆcm    1.4395 (0.065) (30)
1  1 1  0.80400

7.6) The Insurance Index


The Pcm measure of persistence of the Insurance Index for the ARIMA (1,1,0)
specification is given by
1 1
Pˆcm    1.224545 (0.095) (31)
1  1 1  0.18337

7.7) The Investment Index

The Pcm measure of persistence of the Investment Index for the ARIMA (1,1,0)
specification is given by
1 1
Pˆcm    1.394642 (0.12) (32)
1  1 1  0.28297

67
7.8) The Leasing Index

The Pcm measure of persistence of the Leasing Index for the ARIMA (2,1,0)
specification is given by
1 1
Pˆcm    1.259097 (0.11) (33)
1  1   2 1  0.37570  0.16992

7.9) The Parallel Index


The Pcm measure of persistence of the Parallel Index for the ARIMA (2,1,0)
specification is given by
1 1
Pˆcm    1.555984 (0.16) (34)
1  1   2 1  0.49127  0.13395

7.10) The Various Index


The Pcm measure of persistence of the Various Index for the ARIMA (0,1,1)
specification is given by

Pˆcm  1  1  1  0.34234  1.34234 (0.061) (35)

The persistence of shocks to the ASE Composite Index measured over a 3.5-year
period (from 01/01/1997 to 24/05/2000) is 1.22. The persistence of shocks to the rest
of the indices is measured over a 364-day holding period (from 24/05/99 to
22/05/2000). These indices are shown below in order of persistence of shocks to them
(Figure 44):

Figure 44:
Persistence of shocks to the indices
Persistence of shocks

68
Indices:

Constructions 1.662444571
Parallel 1.555984316
Holdings 1.439584257
Investment 1.394641786
Various 1.34234
Leasing 1.259096976
Insurance 1.224544775
Industrial 1.202530123
Bank 0.761205498

What figure 44 says is that shocks to the Constructions Index are more persistent
than shocks to any other index. In other words, the effect of a potential positive or
negative shock to this Index will last a long period. That is, a positive shock to the
Constructions Index will generate higher returns on a Constructions index-tracking
portfolio than on any other index-tracking portfolio. However, a potential negative
shock to this Index will cause such a portfolio to incur dramatic losses. Therefore, a
Construction index-tracking portfolio is very sensitive to shocks and can be very
risky.

Shocks to the Parallel Index are also very persistent. A positive or a negative shock to
this Index will trigger a similar effect as to the Constructions Index. The rest of the
indices follow in order of persistence of shocks to them, namely, Holdings,
Investment, Various, Leasing, Insurance, Industrial and Bank.

It is noteworthy that the persistence of shocks to the Bank Index is 0.76, that is below
unity and less than half of the persistence of shocks to the Parallel Index. In other
words, shocks to the Bank Index die out faster than shocks to any other Index. A Bank
index-tracking portfolio will not easily yield excess returns on the upside, but it will
avoid huge losses on the downside (Figure 45).

69
The following Chart shows the Indices in order of persistence of shocks to them:

Figure 45:
Chart showing persistence of shocks to the nine indices

PERSISTENCE OF SHOCKS

1.8

1.6

1.4 Constructions
Parallel
1.2
Holdings

1 Investment
Various
0.8 Leasing
Insurance
0.6
Industrial
0.4 Bank

0.2

0
ns

gs

g
us

l
t

nk
l

ri a
en
lle

nc
in
io

in

ri o

Ba
st
as
m
ra

ra
ct

ld

du
st

Va
Pa

Le

su
ru

Ho

ve

In
st

In
In
n
Co

Indices

70
Chapter 8

CONCLUSION

In this dissertation, the Greek stock market was examined from different perspectives.
From a general perspective, the reader now has a clear picture of what has happened
to the Athens Stock Exchange during the last twenty years and is already familiar with
the fact that the Greek Stock Market is both an emerging and promising market.
From an econometric perspective, this dissertation has contributed to a thorough
understanding of the behaviour of the stock market. All the indices in the ASE,
namely the General (Composite) index and the nine smaller indices have been
modelled from different standpoints.

The ARIMA models specified for the indices over the recent period between
24/05/1999 and 22/05/2000 produced forecasts at a success rate of 50%. The short-
term out-of-sample forecasts for the Composite, the Industrial, the Holdings, the
Investment and the Parallel indices were successful in predicting a rise or a fall,
although they either underestimated or overestimated them. The short-term out-of-
sample forecasts for the rest of the indices were not successful.

The exponential GARCH model specified for the ASE Composite index over the
larger period between 01/01/1997 and 22/05/2000 allows for positive and negative
news to the market to have a different impact on volatility. A much earlier study by

71
Theodosiou, Koutmos, Negakis (1993) also had reached the same conclusion that an
E-GARCH model best describes volatility in the ASE.

Furthermore, the probability of a rise or fall by a given amount (one percent) in one of
the most important indices (the Bank index) was modelled from a Logit standpoint.
The results provide an indication against the weak form of market efficiency,
especially the fact that a decline in the Bank index could be predicted by so many
(significant) lags of the rest of the indices.

Last but not least, I believe the last chapter (chapter 7) can be useful for those
investors who would like to have an alternative measure of risk for the ASE. Risk
lovers would prefer to invest in a sector that exhibits the highest persistence of shocks.
On the other hand, risk-averse investors would prefer a sector less sensitive to shocks.

Since the accuracy of the persistence estimates is based upon estimation and correct
specification of the ARIMA models, obtaining measures of persistence of shocks for
so many cases was both a difficult and very time-consuming procedure. In this
respect, this dissertation can be valuable for those who are interested in investing in
the Greek Stock Market and wish to know about the risks as well as the speculative
opportunities involved.

Finally, it is worth mentioning that this dissertation serves as a modern complement to


previous work in the area. Since there were few empirical papers for the ASE, the
most recent one dating back in 1996, I felt the need to apply the techniques I have
learned during the Masters course to a real situation and a promising stock market.

72
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College, February 1999

Dannielson John and de-Vries-Casper (1997), “Value-at –Risk and Extreme Returns”,
London School of Economics and Erasmus University, November 26,1997

Fortune Peter (1999),”Are Stock Returns Different over Weekends? A Jump Diffusion
Analysis of the “Weekend Effect” ”, New England Economic Review, September-
October 1999

Galeggati Mauro and Mignacca Domenico, (1994) “IS US REAL GNP CHAOTIC? –
ON USING THE BDS TEST TO DECIDE WHETHER AN ARMA MODEL FOR THE US GNP GENERATES
I.I.D RESIDUALS”, University of Wisconsin-Madison USA

Jacqier Eric et al. (1999), ”Stochastic Volatility: Univariate and Multivariate


Extensions”, Finance Department, Boston College and CIRANO and Graduate
School of Business, the University of Chicago, April 1999

Jang Jing (1999), “The efficiency of an Artificial Stock Market with Heterogeneous
Intelligent Agents”, Economics Department, Concordia University, February 1999,
jingy@vax2.concordia.ca

Johansson Anders and Rolseth Lars (1997), “The effects of firm-specific variables
and consensus forecasts data on the pricing of large Swedish firms’ stocks”,University
of Göthenburg , Department of Economics, E-mail:
Anders.Johansson@economics.gu.se and Lars.Rolseth@economics.gu.se

Kaiser Thomas (1996), “One-factor-GARCH models for German Stocks – Estimation


and Forecasting”, Tübingen University , December 17 ,1996 , Germany,
thomas-kaiser@uni.tuebingen.de

Kaminsky Graciela and Schmuckler Sergio (1999), What Triggers Market Jitters: A
Chronicle of the Asian Crisis, Board of Governors of the Federal Reserve System,
International Finance Discussion Papers, Number 634, April 1999

74
Kim Shangjoon , Shephard Neil and Chib Siddhartha (1996), “Stochastic Volatility:
Likelihood inference and comparison with ARCH models”, Salomon Brothers Asia
Limited, Tokyo, Japan, Nuffield College, Oxford University , Oxford OX1 1NF, UK
and John M. Olin School of Business ,Washington University, St. Luis , MO 63130,
USA , 7 October 1996

Koppl Roger and Nardone Carlo (1997), “The Angular Distribution of Asset Returns
in Delay Space”, Department of Economics and Finance, Fairleigh Dickinson
University , Madison NJ 07940, USA, and CRS4, E-mail: koppl@alpha.fdu.edu
Centre for Advanced Studies, Research and Development in Sardinia, Cagliari, Italy,
E-mail: cmn@crs4.it , February 1997

Koutmos, G., Negakis, C. and P. Theodossiou, (1993), Stochastic behaviour of


the Athens stock exchange, Applied Financial Economics 3, 119-126.

Lobato I.N and Savin N.E, (1996) ”Real and Spurious Long Memory Properties of
Stock Market Data “,Department of Economics ,University of Iowa, Iowa City, IA
522242

Morn Manuel and Rey Jose-Manuel (1996), “A Formalism for the Dimensional
Analysis of Time Series”, Department of Economic Analysis, University of
Complutense 28223 Madrid, Spain, E-mail addresses: ececo06@sis.ucm.es and
ececo07@sis.ucm.es

Nelson William (1999), “Why Does the Change in Shares Predict Stock Returns?”
Federal Reserve Board, January 1999

Ramos Francisco, (1996), “Forecasting Market Shares Using VAR and BVAR
Models: A Comparison of their Forecasting Performance “, Faculty of Economics,
University of Porto, 4200 Porto, Portugal, E-mail: ramos@fep.up.pt

Sharpe A.Steven (1999), “Stock Prices, Expected Returns and Inflation”, Division of
Research and Statistics , Federal Reserve Board ,Washington D.C 20551, August
1999, ssharpe@frb.gov

Thorbecke Willem (1998), “On Stock Market Returns and Monetary Policy”, Working
Paper No.139, submitted to the Jerome Levy Economics Institute of Bard College and
George Mason University, October 1998

Wei Anning and Leuthold Raymond (1998), “Long Agricultural Futures Prices:
ARCH , Long Memory, or Chaos Processes?”, Department of Agricultural and
Consumer Economics, University of Illinois at Urbana-Champaign, OFOR Paper
Number 98-03, May 1998

75
Books

Connolly Kevin (1997), “Buying and Selling Volatility”, John Wiley and Sons Ltd

Demopoulos Dimitrios (2000), “Technical Analysis Part II: Practical Applications:


How to trade in Financial Markets” , EuroCapital 2000, Athens (Greek
version)

Gujarati Damodar (1999), "Essentials of Econometrics", Second Edition, McGraw


Hill

Hull John (2000), “Options, Futures and other Derivatives”, fourth edition, Prentice
Hall International

Malindretou Vasiliki and Malindretos Pavlos (2000), “Stock Market”, Papazisis


Publications, Athens 2000 (Greek version)

Paparisteides Dimirios (1991), “Stock Market and the Potential Investor” , Galaios
Publications ,Athens (Greek version)

Pesaran&Pesaran (1997), "Working with Microfit for Windows 4.0", Oxford


University Press, Oxford 1997

Probopoulos George (1995), “The Greek Financial Intermediary System”, Alpha


Pisteos Bank Publications, (Greek version)

Sharpe William et al. (1999), “Investments”, Prentice Hall

Verbeek Marno (2000), “A Guide to Modern Econometrics”, John Wiley and Sons
Ltd

Watsham&Paramore (1997), "Quantitative Methods for Finance", First Edition,


Thomson Business Press

Web Pages

The Athens Stock Exchange (ASE) Official Web Page: www.ase.gr

Statistical data

Athens Stock Exchange (1999): Annual Statistical Bulletin 1998

Yearbook of the Athens Stock Exchange (1999): Historical and Financial Data of the
Companies Listed on the Athens Stock Exchange

Time Series data

76
Daily observations of the ASE Composite Index from 1/1/1997 to 22/05/2000
(851 observations)

Daily observations of the ASE Banking Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Constructions Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Holdings Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Industrial Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Investments Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Insurance Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Leasing Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Various Index from 24/05/1999 to 22/05/2000


(251 observations)

Daily observations of the ASE Parallel Index from 24/05/1999 to 22/05/2000


(251 observations)

Source: Bloomberg

Miscellaneous

Fuertes A.M and Kennaly Gerry (2000), Modelling and Forecasting Financial
Markets, Course Handbook, London Guildhall University

Computer Software

Microfit for Windows v4.0 Interactive Econometrics Software Package

Microsoft Excel 2000

SPSS 10.0 for Windows

77
78
Appendix

The following table shows the companies listed on the ASE and their market
capitalisation in pound sterling: (Source: ASE Web Site: www.ase.gr )

Table:
Companies listed on the ASE 30/4/99

COMPANIES LISTED ON THE ATHENS STOCK EXCHANGE 30.4.99

MAIN MARKET('000)

BANKS Mkt. Capitalisation (in million £)


1. Alpha Credit Bank S.A. £ 3,778,666.93
2.Aspis Mortgage Bank S.A £ 96,121.79
3. Bank of Attica £ 287,061.94
4. General Hellenic Bank £ 351,659.61
5.Dorian Bank S.A £ 135,057.29
6. National Bank of Greece £ 6,399,839.23
7. Bank of Greece £ 357,091.06
8. N.I.B.I.D. £ 355,584.15
9. Commercial Bank of Greece £ 2,746,432.60
10. Ergo Bank S.A. £ 2,138,851.66
11. Bank of Central Greece £ 170,206.35
12.Ionian Bank £ 989,282.48
13.Bank of Macedonia and Thrace £ 453,414.74
14.Bank of Piraeus £ 1,946,518.98
15.EFG EUROBANK S.A £ 3,755,784.78
16.Xiosbank £ 744,549.62
TOTAL £ 24,706,123.21

INSURANCE COMPANIES
17."Ethniki" General Insurance Co. £ 428,134.93
18.Agrotki Hellenic General Insurance
Co. £ 154,411.05
19."Αspis Pronia" General Insurances £ 250,946.54
20. European Reliance General Ins. Co. £ 37,950.78
21.The "Phoenix" Greek General Ins. Co. £ 162,927.55
TOTAL £ 1,034,370.85

a
Table (continued):

INVESTMENT COMPANIES
22. Aeolian Invest. Fund S.A. £ 18,423.34
23. Aspis Invest. S.A. £ 8,573.24
24.Alpha Investment S.A. £ 234,605.25
25.Alpha Finance S.A. £ 355,030.74
26.Dias S.A. Closed End Inv. Fund £ 6,922.59
27.National Invest. Co. £ 115,978.53
28.Hellenic Inv. Co.A17 £ 191,136.92
29.Commercial Invest. S.A. £ 16,336.49
30.Exelixi S.A. £ 4,518.88
31.Ergo Invest. S.A. £ 133,443.93
32.Inv. Development Fund £ 20,853.71
33.Pireaus Investments S.A. £ 31,550.70
34.Interinvest £ 10,780.33
35.Ionian Investment S.A. £ 16,292.57
36.Marfin S.A. £ 45,977.16
37.The Greek Progress Fund S.A. £ 64,196.35
38.Orion Inter. Inv. Trust S.A. £ 14,140.72
TOTAL £ 1,288,761.46

LEASING COMPANIES
39.Alpha Leasing S.A. £ 131,745.88
40.ETBA Leasing S.A. £ 51,280.41
41.Ergodata S.A. £ 55,459.16
TOTAL £ 238,485.45

HOLDING COMPANIES
42.Αlcar-Aemet £ 12,430.22
43.Viohalco £ 759,514.61
44. Attica Enterprises S.A. £ 384,082.44
45.Ideal Group S.A. £ 126,847.25
46.G.A. Keranis S.A. £ 56,659.99
47.Klonatex I.C.S.T. & T.S.A. £ 141,530.99
48.J. Boutaris & Son Holding S.A. £ 66,915.90
TOTAL £ 1,547,981.41

TELECOMMUNICATION CO.
49.Hellenic Telecommunications Organisation £ 7,034,229.58
50.Panafon S.A £ 4,106,201.82
TOTAL £ 11,140,431.39

PASSENGER SHIPPING COMPANIES


51.ANEK LINES S.A. £ 191,251.86
52.Strintzis Lines S.A. £ 124,271.36
53.Minoan Lines £ 341,005.91
54.Maritime Company of Lesvos £ 25,919.15
TOTAL £ 682,448.28

Table (continued):
TEXTILES
55.ATHENIAN CAPITAL HOLDINGS S.A. £ 80,537.92

b
56.Hellenic Fabrics S.A. £ 14,956.27
57.Elfico S.A. £ 21,011.69
58.Selected Textile Ind.Assoc. S.A. £ 107,345.70
59."Britannia" S.A. £ 24,566.41
60.ETMA Rayon £ 33,556.49
61.Lanakam S.A. £ 14,779.93
62.Naoussa Spinning Mills S.A. £ 303,064.92
63. Textile Industry Nafpaktos £ 30,047.35
64.C.Doudos S.A. £ 23,031.13
65.Macedonian Weaving Co. £ 28,765.39
66. Minerva Knitwear S.A. £ 19,845.81
67.G.Gianousis £ 22,194.79
68.Maxim Pertsinidis Knitwear Factory £ 11,246.23
69.Mouzakis S.A. £ 51,694.38
70.Nimatemporiki S.A. £ 6,629.45
71.Tria Alfa £ 5,262.03
72.Fanco S.A. £ 53,048.68
73.Fintexport £ 12,294.72
TOTAL £ 863,879.30

CHEMICAL PRODUCTS
74.Esha £ 13,040.08
75.Papoutsanis S.A. £ 107,400.55
76.Petzetakis S.A. £ 49,463.49
77. Thrace Plastics Co. S.A. £ 92,105.01
78.Macedonian Plastics S.A. £ 18,155.51
TOTAL £ 280,164.64

PHARMACEUTICAL & COSMETIC PRODUCTS


79.Lavipharm £ 101,488.96
80. Papaellina Group of Companies £ 150,703.86
81. Veterin S.A £ 64,545.09
82.Rilken S.A. £ 43,939.37
83.Gr.Sarantis £ 186,277.02
TOTAL £ 546,954.30

BUILDING MATERIALS CEMENT Co.


84."Kekrops" Hotel, Tourist, Building £ 14,321.63
85. "Keramia Allatini" £ 24,788.81
86."Heracles" General Cement Co. £ 808,091.83
87."Titan" Cement Co. £ 964,717.54

BUILDING MATERIALS CEMENT Co.


88."Halyps" Cement Co. £ 76,483.95
TOTAL £ 1,888,403.76

c
Table (continued):

CONSTRUCTION - TECHNICAL ENTERPRISES


89. Avax S.A. Construction Co. £ 48,291.60
90. Aegek S.A. £ 121,498.55
91.Athena Hellenic Eng. Ind. and Tour. Co. S.A. £ 36,495.95
92. Aktor S.A. Technical Co. £ 160,594.84
93. Alte Technical Company £ 99,865.62
94.Atemke £ 14,716.16
95. Atti-Kat S.A. £ 169,218.36
96. Vioter S.A. £ 25,423.28
97.Gen. Construction Co.S.A. £ 124,979.41
98.Gekat Construction Co. S.A. £ 26,052.27
99.Gnomon Construction S.A. £ 29,252.85
100.Edrasis-C.Pallidas S.A. £ 33,456.19
101.Ηellenic Technodomiki S.A. £ 186,872.26
102.Ergas S.A. £ 17,490.35
103.European Technical S.A. £ 23,459.06
104.Themeliodomi S.A. £ 84,283.69
105.C.I.Sarantopoulos S.A. £ 48,751.03
106.Mesochoritis Bros S.A. £ 12,881.82
107.Michaniki S.A. £ 168,117.56
108.Mochlos S.A. £ 39,203.05
109.Pantechniki S.A £ 41,390.98
110.Proodeftiki Tec. Comp. £ 56,177.77
111.Terna Tourist, Technical and Maritime Co. S.A. £ 66,013.86
112. Volos Technical Co. S.A. £ 66,484.03
113.Technical Olympic S.A. £ 47,437.30
114.TechnodomiI M.Travlos Bros S.A. £ 26,930.25
TOTAL £ 1,775,338.10

ΜINES
115.Silver and Baryte Ores Mining Co. S.A. £ 199,630.05

Table (continued):
METALLURGICAL COMPANIES
116.Albio Biokarpet S.A. £ 102,117.69
117.ALCATEL Cables Hellas S.A. £ 38,846.00
118.Aluminium of Attica S.A. £ 98,619.54
119.Aluminium of Greece S.A. £ 375,040.18
120.Aloumil Milonas Alum. Industry £ 83,554.94

d
121.Halkor £ 272,572.95
122.Elval £ 342,225.60
123.Biossol S.A. £ 15,430.81
124.DARING O. SAIN £ 15,962.76
125.Hellenic Cables S.A. £ 54,019.32
126.Sidenor £ 245,438.45
127.ETEM S.A.Light Metals Industry £ 56,019.65
128.INTRACOM S.A. £ 1,625,715.25
129.Kalpinis-Simos Steel Serv. Center £ 53,988.87
130.Levederis S.A. £ 17,628.40
131.Metka S.A. £ 363,760.67
132.Mytilineos Holdings £ 387,527.41
133.Bitros S.A. £ 82,280.55
134.Radio Athenai S.A. £ 40,069.81
135. Arcadia Metal Ind. C.Rokas £ 80,038.05
136.Girakian Profil S.A. £ 12,647.65
137.Fourlis S.A. £ 172,739.40
138.Sheet Steel Co. £ 13,401.17
TOTAL £ 4,549,645.14

FOOD - SPIRITS COMPANIES


139. A.B. Vassilopoulos S.A. £ 110,876.39
FOOD - SPIRITS COMPANIES
140.GOODY'S S.A. £ 151,263.78
141. Delta Dairy S.A £ 228,203.04
142. Elais S.A. £ 169,224.75
143. Hellenic Sugar Industry S.A. £ 155,799.01
144.Hellenic Bottling Co. S.A. £ 2,473,202.95
145.Hellenic Biscuit Co. £ 106,422.61
146. Thessaliki Spirits Co. £ 21,383.82
147.Selonda Acquaculture S.A £ 45,613.35
148.A.Cambas £ 94,757.12
149.Katselis Sons S.A. £ 55,007.76
150. Uncle Stathis S.A. £ 42,928.64
151.Nirefs S.A £ 59,983.05
152.Nikas S.A. £ 96,819.87
153. Intersat S.A £ 84,808.23
154. Jacobs Suchard Pavlides S.A. £ 32,891.87
155.Chipita International £ 238,747.36
TOTAL £ 4,167,933.59

Table (continued):
FLOUR MILLS
156. Allatini Ind. & Com. Co. £ 66,979.35
157.Flour Mills Loulis £ 41,455.60
158.Flour Mills Sarantopoulos £ 10,201.64
159.St. George's Mills £ 42,538.87
TOTAL £ 161,175.46

COLD STORAGES
160.Parnassos Enterprises S.A. £ 14,824.42

e
TOBACCO INDUSTRIES
161. Karelia S.A. £ 55,108.42
162.Papastratos Co. £ 250,410.23
TOTAL £ 305,518.65

CONTAINERS' INDUSTRIES AND PAPERMILLS


163.Vis Co. £ 18,372.92
164.HELLAS CAN £ 166,819.56
165. M.J. Maillis S.A. £ 291,410.82
TOTAL £ 476,603.30

INDUSTRY OF WOOD PRODUCTS


166.Xylemporia S.A. £ 7,766.11
167.Shelman £ 118,798.54
TOTAL £ 126,564.65

PUBLICATIONS
168. Lambrakis Press £ 312,286.52
169. X. K. TEGOPOULOS PUBLISHING SA £ 129,040.39
TOTAL £ 441,326.91

ΗOTELS
170. Ionian Hotel Ent. £ 201,583.31
171.Lampsa Hotel Co. £ 66,419.05
TOTAL £ 268,002.36

MISCELLANEOUS COMPANIES
172. Athinea S.A. £ 5,577.45
173.Euromedica S.A £ 77,509.36
174. Alisida S.A. £ 8,103.54
175.Warehouses Co. £ 29,685.20
176.General Commercial & Industry £ 19,253.64
177.Elmec Sport £ 71,104.81
178.Eltrak S.A. £ 55,441.83
1797.Emporikos Desmos £ 12,156.38
180.Hermes S.A. £ 6,561.20
181. Zampa S.A. £ 15,258.68

Table (continued):
MISCELLANEOUS COMPANIES
182.Eskimo £ 24,001.73
183. Athens Medical Center S.A. £ 390,981.49
184. Intertech £ 44,713.42
185. Hippotour S.A. £ 23,002.24
186.Hellenic Duty Free Shops £ 337,439.01
187. Klaoudatos G. S.A. £ 19,851.53
188. Labropoulos Bros S.A. £ 50,558.72
189.Benrubi S.A. £ 47,313.84
190.SANYO HELLAS HOLDING S.A.. £ 118,149.96
191. Sato S.A. £ 31,884.02
192.Sfakianakis S.A £ 83,493.95

f
193.Delonghi-Sp.Tasoglou S.A £ 63,999.22
194.Sportsman S.A. £ 53,588.37
TOTAL £ 1,589,629.59

INFORMATICS COMPANIES
195.Delta Informatics S.A. £ 297,160.14
196.Altec Inform. and Com. Systems £ 402,650.53
197. Intrasoft S.A. £ 368,551.33
198. Singular S.A. £ 232,355.81
TOTAL £ 1,300,717.82

PRINTED INFORMATION SYSTEMS


199.Inform P. Lykos S.A. £ 130,250.21

ENERGY
200. Hellenic Petroleum £ 1,125,973.94

MASS MEDIA
201.Tiletipos S.A. £ 196,850.30
TOTAL MAIN MARKET £ 61,047,988.54

PARALLEL MARKET

202. The House of Agriculture Spyrou £ 83,245.10


203.CONNECTION A.E.B.E.E. £ 16,687.81
204. Data Information Systems £ 94,637.81
205.Alco Hellas £ 75,295.31
206.Karamolengos Bakery Industry £ 28,334.05
207.Atermon S.A £ 36,424.56
208.VARANGIS S.A. £ 15,662.92
209. Babyland Toys £ 52,614.03
210.Vernikos Yachts £ 13,747.71
211. Gener S.A. £ 25,176.55
212.Diekat S.A. £ 39,330.29
213.Ekter S.A. £ 10,041.96
214.Elve £ 26,191.08
215.Hellatex Synthetic Yarns £ 16,387.66

Table (continued):

216. Endyssi £ 30,922.51


217. Etane-Efkleidis S.A £ 48,996.51
218.E. KYRIAKIDIS S.A. £ 56,337.61
219.ILEKTRA S.A. £ 18,421.00
220.Folli-Follie £ 153,046.87
221.Info-quest S.A £ 247,891.40
222. Kleeman Hellas S.A £ 61,769.35
223.Chatziioannou S.A. £ 73,632.89
224. Athens Medical Clinic of P.Faliro £ 103,432.11
225. Imperio Forwarding Agent £ 32,653.68
226.EPIPHANIA-INTERTYP PUBLIC. & PRINTING S.A £ 23,470.53

g
227.Cardassilaris & Sons-Cardico £ 69,639.23
228. Cor-fil S.A. £ 8,041.77
2295. Koumbas Ins. Cons. Services £ 18,502.26
230.KRE.KA S.A. £ 17,467.81
231.KIRIAKOULIS MEDITERRANEAN CRUISES SHIPPING S.A. £ 20,260.67
232. Metalloplastki Agriniou £ 11,164.24
233.MOSCHOLIOS CHEMICALS S.A. £ 24,459.26
234.Metrolife Emporiki S.A £ 87,725.34
235.Mevaco S.A £ 29,453.11
236.Mouriades S.A. £ 18,503.21
237. Nick Galis Youth Centers and Assisted Living £ 52,614.03
238. Despec Hellas S.A £ 14,952.28
239. Druckfarben S.A £ 63,969.94
240.XIFIAS S.A. - Kavala's Fishery Products £ 14,952.28
241. E.Pairis £ 63,969.94
242.Pireaus Leasing £ 48,097.14
243. Plaisio Computers S.A £ 40,849.41
244. Pouliades Associates Corporation £ 40,849.41
245.Radio A. Korassidis £ 18,527.28
246.Ridenco S.A. £ 59,485.65
247.Sea Farm Ionian Aquaculture £ 228,561.24
248.Remek Pharmaceuticals-Cosmetics £ 148,722.43
249.S. Sigalas S.A. £ 40,921.07
250.CORINTH PIPEWORKS S.A. £ 34,259.20
251.TEXAPRET S.A. £ 31,462.96
252.Sysware £ 33,617.07
253.Construction Co. Constantinidis £ 165,127.74
254.Yalco-Constantinou £ 9,452.52
255. Flexopack £ 9,111.34
TOTAL £ 3,064,487.20

GRAND TOTAL £ 64,112,475.74

Unit Root tests:

Unit root tests for the natural log of the variable INDEX
Unit root tests for variable LINDEX
The Dickey-Fuller regressions include an intercept and a linear trend
845 observations used in the estimation of all ADF regressions.
Sample period from 7 to 851
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.8316 2001.8 1998.8 1991.7 1996.1
ADF(1) -2.2822 2016.7 2012.7 2003.2 2009.0
ADF(2) -2.2392 2016.7 2011.7 1999.9 2007.2

h
ADF(3) -2.1233 2017.4 2011.4 1997.2 2006.0
ADF(4) -2.0392 2017.8 2010.8 1994.2 2004.5
ADF(5) -2.0278 2017.8 2009.8 1990.9 2002.6
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4174
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DINDEX, the rate of change of the log of the
variable INDEX

Unit root tests for variable DINDEX


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
844 observations used in the estimation of all ADF regressions.
Sample period from 8 to 851
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -24.1455 2010.9 2008.9 2004.2 2007.1
ADF(1) -18.8914 2011.1 2008.1 2001.0 2005.3
ADF(2) -16.5754 2012.0 2008.0 1998.5 2004.4
ADF(3) -14.9029 2012.5 2007.5 1995.7 2003.0
ADF(4) -13.3252 2012.5 2006.5 1992.3 2001.1
ADF(5) -12.1858 2012.6 2005.6 1989.0 1999.2
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8654
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable BANK

Unit root tests for variable LBANK


The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -2.6645 601.6122 598.6122 593.3603 596.4973

i
ADF(1) -3.1921 607.3102 603.3102 596.3077 600.4903
ADF(2) -2.8455 608.5473 603.5473 594.7942 600.0224
ADF(3) -2.6494 608.9631 602.9631 592.4594 598.7333
ADF(4) -2.5137 609.1425 602.1425 589.8881 597.2077
ADF(5) -2.5165 609.1748 601.1748 587.1698 595.5350
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DBANK, the rate of change of the log of the
variable BANK
Unit root tests for variable DBANK
The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -12.8239 599.4323 597.4323 593.9351 596.0238
ADF(1) -11.3433 601.7352 598.7352 593.4895 596.6225
ADF(2) -9.9742 602.6745 598.6745 591.6802 595.8576
ADF(3) -8.9640 603.2573 598.2573 589.5144 594.7361
ADF(4) -7.8302 603.2704 597.2704 586.7789 593.0450
ADF(5) -7.3789 603.6594 596.6594 584.4193 591.7298
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable CONS

Unit root tests for variable LCONS


The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.5865 436.1028 433.1028 427.8509 430.9878

j
ADF(1) -1.9251 456.4273 452.4273 445.4248 449.6074
ADF(2) -1.7826 457.9144 452.9144 444.1612 449.3895
ADF(3) -1.7865 457.9293 451.9293 441.4255 447.6994
ADF(4) -1.7791 457.9294 450.9294 438.6750 445.9945
ADF(5) -1.7861 457.9530 449.9530 435.9480 444.3132
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DCONS, the rate of change of the log of
the variable CONS

Unit root tests for variable DCONS


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -10.1723 451.7750 449.7750 446.2778 448.3665
ADF(1) -9.5462 453.4163 450.4163 445.1705 448.3036
ADF(2) -8.0350 453.4290 449.4290 442.4347 446.6121
ADF(3) -7.1416 453.4299 448.4299 439.6870 444.9087
ADF(4) -6.3892 453.4500 447.4500 436.9585 443.2246
ADF(5) -6.5850 454.9604 447.9604 435.7203 443.0307
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable IND

Unit root tests for variable LIND


The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC

k
DF -1.4136 559.2035 556.2035 550.9516 554.0886
ADF(1) -1.7736 569.1229 565.1229 558.1204 562.3030
ADF(2) -1.5584 571.5586 566.5586 557.8054 563.0337
ADF(3) -1.5610 571.5679 565.5679 555.0641 561.3380
ADF(4) -1.5085 571.6907 564.6907 552.4363 559.7558
ADF(5) -1.4660 571.7673 563.7673 549.7623 558.1275
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DIND, the rate of change of the log of the variable
IND

Unit root tests for variable DIND


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -11.6597 564.7887 562.7887 559.2915 561.3802
ADF(1) -10.8059 567.4645 564.4645 559.2187 562.3518
ADF(2) -8.8201 567.4661 563.4661 556.4717 560.6491
ADF(3) -7.9459 567.6424 562.6424 553.8995 559.1213
ADF(4) -7.2716 567.7574 561.7574 551.2659 557.5320
ADF(5) -6.7720 567.8759 560.8759 548.6358 555.9463
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable HOLS

Unit root tests for variable LHOLS


The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************

l
Test Statistic LL AIC SBC HQC
DF -1.7725 517.9262 514.9262 509.6743 512.8113
ADF(1) -1.7791 533.4712 529.4712 522.4686 526.6513
ADF(2) -1.7046 537.7899 532.7899 524.0367 529.2650
ADF(3) -1.7097 537.9264 531.9264 521.4227 527.6966
ADF(4) -1.7046 537.9269 530.9269 518.6725 525.9921
ADF(5) -1.7480 538.6368 530.6368 516.6318 524.9970
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DHOLS, the rate of change of the log of
the variable HOLS

Unit root tests for variable DHOLS


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -10.5944 528.3908 526.3908 522.8937 524.9824
ADF(1) -10.4880 532.4056 529.4056 524.1598 527.2929
ADF(2) -8.2537 532.7026 528.7026 521.7083 525.8857
ADF(3) -7.2310 532.7060 527.7060 518.9630 524.1848
ADF(4) -6.0392 533.4792 527.4792 516.9877 523.2538
ADF(5) -5.8585 533.7001 526.7001 514.4600 521.7705
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable INS

Unit root tests for variable LINS


The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251

m
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.9671 534.8280 531.8280 526.5761 529.7130
ADF(1) -2.0943 538.7155 534.7155 527.7130 531.8956
ADF(2) -2.0086 539.5975 534.5975 525.8443 531.0726
ADF(3) -1.9416 540.5012 534.5012 523.9974 530.2713
ADF(4) -1.8855 541.7463 534.7463 522.4919 529.8114
ADF(5) -1.8797 541.7464 533.7464 519.7414 528.1066
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DINS, the rate of change of the log of the variable
INS

Unit root tests for variable DINS


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -12.8823 532.5444 530.5444 527.0472 529.1359
ADF(1) -10.7293 533.3315 530.3315 525.0858 528.2188
ADF(2) -9.5000 534.0338 530.0338 523.0395 527.2169
ADF(3) -8.8113 534.9580 529.9580 521.2150 526.4368
ADF(4) -7.5557 534.9690 528.9690 518.4775 524.7436
ADF(5) -7.1197 535.2783 528.2783 516.0382 523.3487
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable INV
Unit root tests for variable LINV
The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251

n
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.3289 524.7928 521.7928 516.5409 519.6778
ADF(1) -1.4933 534.1500 530.1500 523.1475 527.3301
ADF(2) -1.3720 535.8269 530.8269 522.0737 527.3020
ADF(3) -1.3936 535.9235 529.9235 519.4198 525.6937
ADF(4) -1.4287 536.1178 529.1178 516.8634 524.1829
ADF(5) -1.3853 536.2592 528.2592 514.2542 522.6194
*******************************************************************************

Unit root tests for DINV, the rate of change of the log of the variable
INV
Unit root tests for variable DINV
The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -11.5359 528.9955 526.9955 523.4983 525.5870
ADF(1) -10.3608 530.5585 527.5585 522.3127 525.4458
ADF(2) -8.2778 530.7415 526.7415 519.7472 523.9246
ADF(3) -6.9451 531.0282 526.0282 517.2853 522.5070
ADF(4) -6.5097 531.1309 525.1309 514.6394 520.9055
ADF(5) -5.9792 531.1314 524.1314 511.8914 519.2018
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable LEAS

Unit root tests for variable LLEAS

o
The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.9448 474.9011 471.9011 466.6492 469.7861
ADF(1) -1.9660 486.7204 482.7204 475.7179 479.9005
ADF(2) -1.8713 491.2625 486.2625 477.5094 482.7376
ADF(3) -1.8757 491.3387 485.3387 474.8349 481.1088
ADF(4) -1.8763 491.3522 484.3522 472.0978 479.4174
ADF(5) -1.8601 491.3945 483.3945 469.3895 477.7547
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DLEAS, the rate of change of the log of the

variable LEAS

Unit root tests for variable DLEAS


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -11.1253 480.6449 478.6449 475.1478 477.2365
ADF(1) -10.8468 484.6297 481.6297 476.3840 479.5170
ADF(2) -8.5124 484.8373 480.8373 473.8430 478.0204
ADF(3) -7.2793 484.8955 479.8955 471.1526 476.3744
ADF(4) -6.6177 484.9041 478.9041 468.4126 474.6787
ADF(5) -6.4727 485.4113 478.4113 466.1712 473.4816
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable PAR
Unit root tests for variable LPAR
The Dickey-Fuller regressions include an intercept and a linear trend

p
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.7552 425.4956 422.4956 417.2437 420.3806
ADF(1) -1.8318 449.3083 445.3083 438.3058 442.4884
ADF(2) -1.7178 452.3245 447.3245 438.5714 443.7996
ADF(3) -1.7033 452.3668 446.3668 435.8630 442.1369
ADF(4) -1.7268 452.6039 445.6039 433.3495 440.6690
ADF(5) -1.7033 452.6767 444.6767 430.6717 439.0369
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion
Unit root tests for DPAR, the rate of change of the log of
the variable PAR
Unit root tests for variable DPAR
The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -9.6872 444.1437 442.1437 438.6465 440.7352
ADF(1) -9.5698 446.9933 443.9933 438.7475 441.8806
ADF(2) -8.1699 446.9965 442.9965 436.0021 440.1795
ADF(3) -6.8408 447.3357 442.3357 433.5927 438.8145
ADF(4) -6.3454 447.3688 441.3688 430.8772 437.1434
ADF(5) -6.3901 448.2989 441.2989 429.0588 436.3693
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for the natural log of the variable VAR

q
Unit root tests for variable LVAR
The Dickey-Fuller regressions include an intercept and a linear trend
*******************************************************************************
245 observations used in the estimation of all ADF regressions.
Sample period from 7 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -1.0163 524.3495 521.3495 516.0976 519.2346
ADF(1) -1.2293 534.9776 530.9776 523.9751 528.1577
ADF(2) -1.0986 537.0726 532.0726 523.3195 528.5477
ADF(3) -1.1430 537.3984 531.3984 520.8946 527.1685
ADF(4) -1.1566 537.4373 530.4373 518.1829 525.5025
ADF(5) -1.0963 537.7693 529.7693 515.7643 524.1295
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -3.4294
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

Unit root tests for DVAR, the rate of change of the log of the variable

VAR

Unit root tests for variable DVAR


The Dickey-Fuller regressions include an intercept but not a trend
*******************************************************************************
244 observations used in the estimation of all ADF regressions.
Sample period from 8 to 251
*******************************************************************************
Test Statistic LL AIC SBC HQC
DF -11.2971 530.9560 528.9560 525.4588 527.5476
ADF(1) -10.3773 532.9839 529.9839 524.7381 527.8712
ADF(2) -8.1031 533.4210 529.4210 522.4267 526.6041
ADF(3) -7.0087 533.4780 528.4780 519.7350 524.9568
ADF(4) -6.7016 533.8001 527.8001 517.3086 523.5747
ADF(5) -6.1895 533.8093 526.8093 514.5693 521.8797
*******************************************************************************
95% critical value for the augmented Dickey-Fuller statistic = -2.8735
LL = Maximized log-likelihood AIC = Akaike Information Criterion
SBC = Schwarz Bayesian Criterion HQC = Hannan-Quinn Criterion

r
ARIMA forecasts:

Single equation Dynamic Forecasts for DINDEX


Single Equation Dynamic Forecasts
*******************************************************************************
Based on OLS regression of DINDEX on:
INPT DINDEX(-1)
841 observations used for estimation from 5 to 845
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
846 .022687 .0036392 .019047 .022388
847 .0049039 .0021490 .0027549 .022757
848 -.0013194 .0018784 -.0031978 .022770
849 .0078735 .0018292 .0060443 .022770
850 .012956 .0018203 .011135 .022770
851 -.023316 .0018186 -.025134 .022770
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 846 to 851
Mean Prediction Errors .0017750 Mean Sum Abs Pred Errors .011219
Sum Squares Pred Errors .1955E-3 Root Mean Sumsq Pred Errors .013981
Predictive failure test F( 6, 839)= .41925[.866]
Structural stability test F( 2, 843)= .054536[.947]
*******************************************************************************

s
Single equation Dynamic Forecasts for DBANK
Single Equation Dynamic Forecasts
*******************************************************************************
Based on stochastic initial value(s) MA(1) regression of DBANK on:
DBANK(-1) DBANK(-2) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error
246 .037570 -.0011752 .038745
247 .014829 -.0012193 .016048
248 -.0026557 -.8683E-3 -.0017874
249 -.0016499 -.5372E-3 -.0011128
250 .0033799 -.3277E-3 .0037075
251 -.019561 -.2236E-3 -.019338
*******************************************************************************

Summary statistics for single equation dynamic forecasts


*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors .0060439 Mean Sum Abs Pred Errors .013456
Sum Squares Pred Errors .3585E-3 Root Mean Sumsq Pred Errors .018933
*******************************************************************************

t
Single equation Dynamic Forecasts for DCONS

Single Equation Dynamic Forecasts


*******************************************************************************
Based on OLS regression of DCONS on:
DCONS(-1) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
246 -.029648 .010956 -.040604 .038069
247 .010245 .0055484 .0046962 .041027
248 .0078133 .0033937 .0044196 .041492
249 .053215 .0025353 .050680 .041572
250 .023142 .0021932 .020949 .041588
251 -.073627 .0020569 -.075684 .041592
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors -.0059240 Mean Sum Abs Pred Errors .032839
Sum Squares Pred Errors .0017376 Root Mean Sumsq Pred Errors .041685
Predictive failure test F( 6, 239)= 1.3312[.244]
Structural stability test F( 2, 243)= .65226[.522]
*******************************************************************************

u
Single equation Dynamic Forecasts for DIND
Single Equation Dynamic Forecasts
*******************************************************************************
Based on OLS regression of DIND on:
DIND(-1) DIND(-2) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
246 .013975 .0051509 .0088240 .024102
247 -.0024011 -.5994E-3 -.0018018 .025322
248 .0028043 -.2854E-3 .0030897 .025312
249 .0075732 .6689E-3 .0069043 .025341
250 .012984 .9248E-3 .012059 .025341
251 -.021349 .8641E-3 -.022213 .025341
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors .0011436 Mean Sum Abs Pred Errors .0091487
Sum Squares Pred Errors .1295E-3 Root Mean Sumsq Pred Errors .011381
Predictive failure test F( 6, 238)= .25643[.956]
Structural stability test F( 3, 241)= .039306[.990]

v
Single equation Dynamic Forecasts for DHOLS

Single Equation Dynamic Forecasts


*******************************************************************************
Based on stochastic initial value(s) MA(2) regression of DHOLS on:
DHOLS(-1) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error
246 .032115 .0072952 .024820
247 -.0033908 .0017996 -.0051905
248 -.0025610 .0022079 -.0047688
249 .019603 .0018796 .017723
250 .028073 .0021435 .025930
251 -.012035 .0019314 -.013966
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors .0074246 Mean Sum Abs Pred Errors .015400
Sum Squares Pred Errors .3079E-3 Root Mean Sumsq Pred Errors .017546
*******************************************************************************

w
Single equation Dynamic Forecasts for DINS
Single Equation Dynamic Forecasts
*******************************************************************************
Based on OLS regression of DINS on:
DINS(-1) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
246 .012912 .0047940 .0081175 .027632
247 -.014058 .0017323 -.015790 .028086
248 -.016187 .0011709 -.017358 .028102
249 -.0054500 .0010680 -.0065180 .028103
250 .0057802 .0010491 .0047311 .028103
251 -.016387 .0010456 -.017432 .028103
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors -.0073751 Mean Sum Abs Pred Errors .011658
Sum Squares Pred Errors .1642E-3 Root Mean Sumsq Pred Errors .012815
Predictive failure test F( 6, 239)= .20835[.974]
Structural stability test F( 2, 243)= .17371[.841]

x
Single equation Dynamic Forecasts for DINV

Single Equation Dynamic Forecasts


*******************************************************************************
Based on OLS regression of DINV on:
DINV(-1) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
246 .034634 .014674 .019960 .028258
247 -.017544 .0054059 -.022949 .029294
248 -.0095452 .0027834 -.012329 .029354
249 .0082482 .0020413 .0062069 .029357
250 .025007 .0018313 .023175 .029358
251 -.017090 .0017719 -.018862 .029358
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors -.7997E-3 Mean Sum Abs Pred Errors .017247
Sum Squares Pred Errors .3347E-3 Root Mean Sumsq Pred Errors .018296
Predictive failure test F(6, 239)= .51836[.794]
Structural stability test F(2, 243)= .033329[.967]
*******************************************************************************

y
Single equation Dynamic Forecasts for DLEAS

Single Equation Dynamic Forecasts


*******************************************************************************
Based on OLS regression of DLEAS on:
DLEAS(-1) DLEAS(-2) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
246 .012724 .020582 -.0078584 .034160
247 -.035451 -.0032483 -.032202 .036632
248 -.012865 -.0031914 -.0096733 .036314
249 .0080344 .8793E-3 .0071552 .036281
250 .020395 .0023989 .017996 .036286
251 -.039007 .0022782 -.041286 .036280
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors -.010978 Mean Sum Abs Pred Errors .019362
Sum Squares Pred Errors .5453E-3 Root Mean Sumsq Pred Errors .023352
Predictive failure test F( 6, 238)= .47898[.824]
Structural stability test F( 3, 241)= .37085[.774]
*******************************************************************************

z
Single equation Dynamic Forecasts for DPAR

Single Equation Dynamic Forecasts


*******************************************************************************
Based on OLS regression of DPAR on:
DPAR(-1) DPAR(-2) INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error S.D. of Error
246 .011916 .019191 -.0072752 .039084
247 .0052893 .0050843 .2051E-3 .043651
248 .033599 .0013486 .032251 .043820
249 .073906 .0014029 .072503 .043769
250 .052373 .0019300 .050443 .043761
251 -.066469 .0021816 -.068651 .043760
*******************************************************************************
Summary statistics for single equation dynamic forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors .013246 Mean Sum Abs Pred Errors .038555
Sum Squares Pred Errors .0022679 Root Mean Sumsq Pred Errors .047622
Predictive failure test F( 6, 238)= 1.2725[.271]
Structural stability test F( 3, 241)= 2.2315[.085]
******************************************************************************

aa
Single equation Static Forecasts for DVAR
Single Equation Static Forecasts
*******************************************************************************
Based on stochastic initial value(s) MA(1) regression of DVAR on:
INPT
241 observations used for estimation from 5 to 245
*******************************************************************************
Observation Actual Prediction Error
246 .019634 .014795 .0048396
247 -.017693 .0017009 -.019394
248 .0032337 .0017009 .0015328
249 .015341 .0017009 .013640
250 .010876 .0017009 .0091750
251 -.043337 .0017009 -.045038
******************************************************************************
Summary statistics for single equation static forecasts
*******************************************************************************
Based on 6 observations from 246 to 251
Mean Prediction Errors -.0058741 Mean Sum Abs Pred Errors .015603
Sum Squares Pred Errors .4501E-3 Root Mean Sumsq Pred Errors .021215
*******************************************************************************

bb
Test for ARCH effects (referring to chapter 5):
Test for ARCH effects in the equation that describes the ASE Composite index

Autoregressive Conditional Heteroscedasticity Test of Residuals (OLS Case)

*******************************************************************************
Dependent variable is DLINDEX
List of the variables in the regression:
INPT DINDEX(-1)
849 observations used for estimation from 3 to 851
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Lagrange Multiplier Statistic CHSQ( 1)= 32.3148[.000]
F Statistic F( 1, 846)= 33.4747[.000]
*******************************************************************************

Test for serial correlation of residuals:


Test of Serial Correlation of Residuals (OLS case)
*******************************************************************************
Dependent variable is DINDEX
List of variables in OLS regression:
INPT DINDEX(-1)
849 observations used for estimation from 3 to 851
*******************************************************************************
Regressor Coefficient Standard Error T-Ratio[Prob]
OLS RES(- 1) -.027302 2.3195 -.011771[.991]
OLS RES(- 2) -.014498 .42163 -.034385[.973]
OLS RES(- 3) -.043105 .083555 -.51588[.606]
OLS RES(- 4) -.042117 .037111 -1.1349[.257]
*******************************************************************************
Lagrange Multiplier Statistic CHSQ( 4)= 3.0851[.544]
F Statistic F( 4, 843)= .76861[.546]
*******************************************************************************

cc
Analyses of functions of parameters (referring to Chapter 7):
Analysis of Function of Parameters for the Composite Index:
Function Estimate Standard Error T-Ratio[Prob]
pcm 1.221 .050492 24.1942[.000]
Analysis of Function of Parameters for the Bank Index:
Function Estimate Standard Error T-Ratio[Prob]
pcm .76120 .25465 2.9892[.003]
Analysis of Function of Parameters for the Constructions Index
Function Estimate Standard Error T-Ratio[Prob]
pcm 1.6624 .16401 10.1354[.000]
Analysis of Function of Parameters for the Industrial Index
Function Estimate Standard Error T-Ratio[Prob]
pcm 1.2025 .11166 10.7693[.000]
Analysis of Function of Parameters for the Holdings Index
Function Estimate Standard Error T-Ratio[Prob]
pcm 1.4396 .065092 22.1160[.000]

Analysis of Function of Parameters for the Insurance Index


Function Estimate Standard Error T-Ratio[Prob]
pcm 1.2245 .095453 12.8288[.000]

Analysis of Function of Parameters for the Investment Index


Function Estimate Standard Error T-Ratio[Prob]
pcm 1.3946 .12122 11.5052[.000]

Analysis of Function of Parameters for the Leasing Index


Function Estimate Standard Error T-Ratio[Prob]
pcm 1.2591 .11930 10.5542[.000]
Analysis of Function of Parameters for the Parallel Index
Function Estimate Standard Error T-Ratio[Prob]
pcm 1.5560 .16607 9.3695[.000]

Analysis of Function of Parameters for the Various Index


Function Estimate Standard Error T-Ratio[Prob]
pcm 1.3423 .061060 21.9839[.000]

dd

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