Financial crisis, liquidity and dynamic linkages between large and small stocks: Evidence from the Athens Stock Exchange

Koulakiotis, Athanasios; Babalos, Vassilios; Papasyriopoulos, Nicholas

doi:10.1016/j.intfin.2015.06.004

Cited by 8 publications

(6 citation statements)

References 52 publications

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“…That said, volatility linkages between markets can arise from the following two different sources: (i) common information that affects more than one market concurrently and (ii) informational spillovers attributable to cross-market hedging (Fleming et al 1998, p. 112). This could reconcile our findings with others in the literature; for example, Karmakar (2010), Koulakiotis et al (2016) and Kyrkilis et al (2018) find strong evidence for feedback in conditional variance between portfolios of small stocks and of large stocks in the Indian and Greek markets, respectively.…”

Section: Returns and Risk Spillovers Between The Main And Sme Stock M...supporting

confidence: 91%

“…Despite the extensive body of evidence on the linkages between large and small stocks listed in the same main market (see, among others, Karmakar 2010; Koulakiotis et al 2016;Lo and MacKinlay 1990), the potential linkages between SMEs and main stock markets have been investigated far less thoroughly. The few studies in this realm include those by Samitas et al (2006) and Nguyen et al (2020).…”

Section: Introductionmentioning

confidence: 99%

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The COVID-19 Outbreak and Risk–Return Spillovers between Main and SME Stock Markets in the MENA Region

Al-Nassar

Makram

2022

IJFS

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This study investigates return and asymmetric volatility spillovers and dynamic correlations between the main and small and medium-sized enterprise (SME) stock markets in Saudi Arabia and Egypt for the periods before and during the COVID-19 pandemic. Return and volatility spillovers are modelled using a VAR-asymmetric BEKK–GARCH (1,1) model, while a VAR-asymmetric DCC–GARCH (1,1) model is employed to model the dynamic conditional correlations between these markets, which are then used to determine and explore portfolio design and hedging implications. The results show that while bidirectional return spillovers between the main and SME stock markets are limited to Saudi Arabia, shock and volatility spillovers have different characteristics and dynamics in both main–SME market pairs. In addition, the dynamic correlations between the main and SME markets are mostly positive and have notably increased during the COVID-19 pandemic, particularly in Saudi Arabia, suggesting that adding SME stocks to a main stock portfolio enhances its risk-adjusted return, especially during tranquil market phases. One practical implication of our results is that the development of SME stock markets can indirectly contribute to economic development via the main market channel and provide an avenue for portfolio diversification and risk management.

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Section: Returns and Risk Spillovers Between The Main And Sme Stock M...supporting

confidence: 91%

Section: Introductionmentioning

confidence: 99%

The COVID-19 Outbreak and Risk–Return Spillovers between Main and SME Stock Markets in the MENA Region

Al-Nassar

Makram

2022

IJFS

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“…Therefore, it is expected that market interdependencies in the ASE should ex ante affect the stock market behavior of the SEE markets. Moreover, as Koulakiotis et al (2016) point out “Greek stock market is a small, peripheral, and downgraded to emerging market status European stock market that is a member of the Eurozone. However, Greek stock market has lately been in the epicenter of large investment funds and this is exactly what the official data confirm.…”

Section: Introductionmentioning

confidence: 99%

Feedback trading and short-term return dynamics in Athens Stock Exchange

Kyrkilis

Koulakiotis

Babalos

et al. 2018

IJMF

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Purpose The purpose of this paper is to examine the hypothesis of feedback trading along with the short-term return dynamics of three size-based stock portfolios of Athens Stock Exchange during the Greek debt crisis period. Design/methodology/approach To this end, the authors employ for the first time in the literature two well-known models while the variance equation is modeled by means of a multivariate EGARCH specification. As a robustness test an innovative nested-EGARCH model is also employed. Findings The assumption that positive feedback trading is an important component of the short-term return movements across the three stock portfolios receives significant support. Moreover, the volatility interdependence, both in magnitude and sign, is almost similar across the three models. Finally, bad news originating from the portfolio of small stock appears to have a higher impact on the volatility of large and medium size stock returns than good news during the Greek debt crisis period. Originality/value The methodology is innovative and the authors test for the first time the feedback trading hypothesis across different size stocks. The authors believe that the results might entail significant policy implications for investors and market regulators.

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“…Chelley-Steeley and Steeley (1996) and Harris and Pisedtasalasai (2006) confirmed the asymmetric transmission of return and volatility from large to small stocks in the UK, while Harris and Pisedtasalasai (2006) found limited feedback from the portfolios of smaller stocks to the portfolios of larger stocks but only in subsamples. Similarly, Koulakiotis et al (2016) found mild asymmetry in the cross-correlations of returns and residuals, while volatility spillovers exhibited a feedback effect among large, medium, and small stocks, especially during the postcrisis period in the Greek stock market. While Reyes (2001) and Ewing and Malik (2005) showed that there is no causality between large and small stock returns in either direction, they found asymmetric volatility spillovers running from the large to the small stock portfolio in the Japanese and US stock markets, respectively.…”

Section: Introductionmentioning

confidence: 83%

“…Constructing five size-based portfolios from stocks in the Athens stock exchange, Drakos (2016) confirmed an asymmetric lead-lag effect in the returns reported by early studies in the US and UK in the short and long run. However, Koulakiotis et al (2016), on the basis of three FTSE size-based indices for the Athens stock exchange, found, using VAR-EGARCH models, moderate asymmetry in the returns spillover while volatilities showed a feedback effect, especially during the post-GFC period. Using a VEC-BEKK-MGARCH model and the Dieobold and Yilmaz (2012) spillover approach, Apostolakis et al (2021) found return spillover feedback based on the VEC-BEKK-MGARCH between large-and mid-cap indices.…”

Section: Interdependencies Among Size-based Portfolios In Other Advan...mentioning

confidence: 97%

The Dynamic Return and Volatility Spillovers among Size-Based Stock Portfolios in the Saudi Market and Their Portfolio Management Implications during Different Crises

Al-Nassar

2023

IJFS

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This study contributes to the ongoing debate on the size effect and size-based investment styles by investigating the return and volatility spillovers and time-varying conditional correlations among Saudi large-, mid-, and small-cap indices. To this end, we utilize the weekly returns on the MSCI Saudi large-, mid-, and small-cap indices over a long sample period, spanning several crises. The econometric approach that we use is a VAR-asymmetric BEKK-GARCH model which accounts for structural breaks. On the basis of the VAR-asymmetric BEKK-GARCH model estimation results, we calculate portfolio weights and hedge ratios, and discuss their risk management implications. The empirical results confirm the presence of unilateral return spillovers running from mid- to small-cap stocks, while multilateral volatility spillovers are documented, albeit substantially weakened when accounting for structural breaks. The time-varying conditional correlations display clear spikes around crises, which translate to higher hedge ratios, increasing the cost of hedging during turbulent times. The optimal portfolio weights suggest that investors generally overweight large caps in their portfolios during uncertain times to minimize risk without lowering expected returns. The main takeaway from our results is that passively confining fund managers to a particular size category regardless of the prevailing market conditions may lead to suboptimal performance.

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Financial crisis, liquidity and dynamic linkages between large and small stocks: Evidence from the Athens Stock Exchange

Cited by 8 publications

References 52 publications

The COVID-19 Outbreak and Risk–Return Spillovers between Main and SME Stock Markets in the MENA Region

The COVID-19 Outbreak and Risk–Return Spillovers between Main and SME Stock Markets in the MENA Region

Feedback trading and short-term return dynamics in Athens Stock Exchange

The Dynamic Return and Volatility Spillovers among Size-Based Stock Portfolios in the Saudi Market and Their Portfolio Management Implications during Different Crises

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