In this paper we explore the nonlinear diachronic relationship between the financial newspapers circulations and the General Index of the Athens Stocks Exchange (ASE). Using daily data for the last six years and nonlinear cointergration and causality techniques we were unable to identify any stable long run co movements between these two variables. We also verified nonlinear short run diachronic interactions between the financial newspapers circulation and the returns of the Athens Stocks Exchange General Index. We schedule these diachronic interactions and compare the diachronic effects between these variables at different time periods in the whole estimation period1. These findings could raise doubts for the efficiency of the Greek stock market and might have some positive implications for investors with respect to decisions regarding entering or exiting the market or investment strategies taking into account the diachronic behaviour of the financial newspapers circulations.
The literature that investigates the nature of the causal relationship between financial newspapers circulations and the returns of the Athens Stocks Exchange General Index is not extensive at all. We could not find any reference2 which deal with the same problem and the same methodological tools we use in this paper.
An interesting and quite resent work which is related, at least methodologically to our work is an unpublished CEPR Discussion Paper (No. 5912) of Argentesi E , Motta M. and Luetkepohl H., (2007). Using monthly data for the Italian economy for the period 1978-2003, these authors verified stable linear co movements between the financial newspapers circulation and the returns of the general index of the Italian Stocks Exchange market. In addition they trace a linear causality effect running from the general index to the financial newspapers circulation but not the opposite.
Another interesting work is the paper of Dyck A and Zingales L. (2003) where the possible feedback between the ‘media cover’ of the stocks exchange market developments and the prices of stocks is analyzed. According to their results these researchers trace an effect running from the ‘media cover’ to the prices of stocks in the exchange market. Barber, Lehavy, Mcnichols, and Trueman, (2001), Bjerring, J, Lakonishok and Vermaelen, (1983) and Canes and Lloyd-Davies(1978) investigate the role of buy and sell recommendations on the variability of stocks returns. According to their results the buy and sell recommendations effects positively or negatively the returns and specially the abnormal returns and abnormal volumes. In this body of studies we may include the works of Liu et all (1990), Beneish (1991), Palmon et all, (1994), Mathus and Wahead(1995), Bolstar and Thahan (1995), Sant and Zaman (1996), Ferreira and Smith (1999), Liang (1999) ,Muratoglou and Yazici(2002) and Kiymat(2002). Liu, P., Smith D., and Syed A., (1990) analysed the effects of newspaper comments for some stocks in some Wall Street journals as the: Texas Journal, Florida Journal, Southeast Journal, Wall Street Journal/California, και New England Journal. Basic result of their analysis is that: ‘articles in regional publications have a statistically significant impact on stock prices on the day of publication’.
In brief, the empirical evidence indicates that there is a conflict about the existence of linear bi-directional causality between financial newspapers circulations and the returns of Stocks Exchange Markets. The possibility of nonlinear bi-directional causality between financial newspapers circulations and the developments of stocks markets is for the first time investigated.
In this paper using daily data available from 2003 to 2007 and a modified version of the Hsiao’s (1981) linear causality method we investigate if there exists any linear or non-linear diachronic relationship between financial newspapers circulations and the Athens Stocks Exchange General Index. According to our knowledge, no other similar study for the case of Greece exists in the literature(psychogios 1992,2008 and Leandros 1992). Our results confirm the existence of a non-linear diachronic relationship between financial newspapers circulations and the Athens Stocks Exchange General Index.