Volume 2, Number 3 / September , Pages 167-244
Testing Asset Pricing Models: The Case of Athens Stock Exchange
Multinational Finance Journal, 1998, vol. 2, no. 3, pp. 189-223
Antonis Demos , Athens University of Economics and Business, Greece    Corresponding Author
Sofia Parissi , Athens University of Economics and Business, Greece

This article applies a conditionally heteroskedastic asset pricing model to describe the time variation in the first and second moments of asset returns in an interdependent way in the emerging capital market of Greece. Depending on the observability of the factors and under the chosen parameterization it is possible to derive tests to address economically important questions that the models impose on the risk-return relationship. We apply the derived tests on the nine sectorial portfolios and the value weighted index of the Athens Stock Exchange, over the period 1985-1997. The evidence from the unconditional and conditional CAPM, with the Value Weighted Index as a benchmark portfolio, suggests the inefficiency of the Index. On the other hand, the dynamic latent factor model, considered here, describes sectorial returns in a much better way. However, there is still a shadow of doubt on the hypothesis that the price of risk is common across assets.

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