George Karathanassis

Cross-Sectional Estimation of Stock Returns in Small Markets: The Case of the Athens Stock Exchange

This study is an investigation into the cross-sectional determinants of stock returns in a small market - the Athens Stock Exchange - where the Fama and French portfolio grouping procedure that is normally used to counter the error in variables problem in estimating beta is problematic due to the small number of stocks. A maximum likelihood technique is applied, similar to that developed by Litzenberger and Ramaswamy (Journal of Financial Economics, 7, 163–95, 1979), which is arguably a better procedure than the portfolio grouping method even for investigating large (developed) markets. A further empirical problem that was addressed was the possibility that the results were being driven by the ‘January effect’. The findings for the Athens market suggest that there is only one substantive variable in explaining the cross-sectional variation of market and that is market equity ME (which captures a size effect).

Corporate Governance and Firm Performance: Results from Greek Firms

In this paper, we construct a Governance Index for a sample of Greek companies quoted on the Athens Stock Exchange. We then classify firms, using each firm governance index, into three governance portfolios. Furthermore, the Fama and French model, extended to include a momentum variable, is tested for each of the three governance portfolios. Our findings suggest that most of the firms in our sample are semi-democracies followed by democracies and dictatorships respectively. Good governance appears to be of value in as much as we found higher Tobin’s q ratios for democracies followed by semi-democracies and dictatorships. We, also, report significant negative abnormal returns for shareholder-friendly and manager-friendly firms. The findings of significant negative abnormal returns are consistent with inefficient capital markets. At a practitioner level, the results imply that firms should practice vigorously good governance, as it is a policy of value to shareholders and possibly to other stakeholders.

Re‐examination of the reinvestment rate assumptions

The paper compares the Net Present Value and the Internal Rate of Return Methods paying particular attention to Mutually Exclusive Projects. In addition it looks into the reinvestment rate assumption concept. Using a different approach to those used to‐date, it is shown that the reinvestment assumption should not concern analysts, provided they use the Net Present Value Method.

An empirical examination of the value relevance of consolidated earnings figures under a cost of acquisition regime

This study examined empirically the value relevance of, first, the total reported consolidated accounting earnings and, secondly, the earnings of the subsidiaries attributed to the parent company, under a cost of acquisition regime, via an association study. Various alternative models were formed and tested empirically against data obtained from the Athens Stock Exchange for the years 1993, 1994 and 1995. It was found that, when undeflated, total reported consolidated earnings were value relevant but to a lesser degree than the total reported earnings of the parent company, probably because they are the sum of a set of heterogeneous earnings components. Similarly, consolidation did not improve the explanatory power of the valuation models. However, decomposition of the total reported consolidated earnings into the part contributed by the parent company and the part contributed by the subsidiaries (excess group earnings), in order to account for the different legal (and tax) status of these two earnings components provided two earnings measures with different degree of value relevance, thus verifying expectations.

An empirical application of the clean–surplus valuation model: the case of the Athens Stock Exchange

Recent studies on equity valuation suggest that security prices should be determined by book value and discounted future abnormal earnings (Ohlson, 1995; Feltham and Ohlson, 1995). This paper examines the empirical validity of these theoretical models for the Greek equity market. More specifically, it uses a panel data methodology to study equity prices for important sectors of the economy. To anticipate the results, these models appear to be reliable price valuation models, for Greek equities.

Value relevance of institutional investors

In this paper we investigate the influence of institutional investors on share prices using data from companies quoted on the Athens Stock Exchange. For finance theorists the value of an investment, real or financial, is a function of its expected benefits and the riskiness of these benefits. Whatever influences are exerted by the structure of equity ownership are diversified away by efficient risk-averse investors. Managerial and agency theorists argue that the particular ownership structure may have an effect on share value or returns. Their arguments are based (mainly) on the consequences of the separation of ownership from control. In addition to traditional methods of estimation we have used Chamberlain’s (1982) multivariate panel data estimator, which allows for arbitrary patterns of error autocorrelation and parameter temporal behavior. Among all alternative methods of estimation used, only this one produced a statistically significant and econometrically well specified relationship between share prices and institutional shareholdings.

Traditional versus Clean-Surplus Valuation Models: Evidence from U.K. Stocks

Early theoretical work on equity valuation suggests that equity prices are a function of such variables as dividends and growth in dividends. Over the past few years the clean-surplus valuation approach has rekindled interest in empirical valuation models. This article employs panel data methodology and uses equity prices from the London Stock Exchange to compare empirically the performance of the traditional and the more-recent models of equity valuation. On the whole, the results show that the performance of the traditional valuation model is similar to that of the clean-surplus valuation model.