Long-run and short-run relationship between the main stock indexes: evidencefrom the Athens stock exchange

Evidence on long-run and short-run relationship among the major stock indexes inthe highly concentrated Athens stock exchange (ASE) is provided utilizing dailydata for the period 01/01/96 to 31/12/03. The findings suggest that even thoughthe sector indexes do not show a consistent and strong long-term relationship,the banking sector seems to have a strong influence on returns and volatility ofother sectors at least in the short-run. The variance decomposition analysisconfirms that although the variance of returns for most sectors is largelyinfluenced by their own innovations, banking sector is able to explain 25% ofvariance of construction and insurance sectors and around 15% of the variance ofindustrial, investment and the holding sectors. The leading role of the bankingsector implies that changes in the banking sector index could be potentiallyused in predicting short term movements in other sector indexes confirming thatthe ASE is not weak form efficient.