European Financial Management, zyxwvu Vol. 2, No. 1, 1996, 113-126 zyxw Stock prices and the flow of information in the Athens Stock Exchange Kate Phylaktis, Manolis G Kavussanos Department of Banking, City University Business School, Frobisher Crescent, Barbican Centre, London ECZY 8HB, UK and Gikas Manalis National Bank of Greece Abstract zyxwv The paper investigates the dynamics of price changes and information flow to the market in the Athens Stock Exchange in Greece using daily data over the period 1988 to 1993. zyxwv A generalised autoregressive conditional heteroskedastic (GARCH) model in stock returns is shown to reflect time dependence in the process generating information flow to the market. Using daily trading volume or value as proxies for information flow, we find them to be significant in explaining the variance of daily returns and to reduce GARCH eflects substan- tially. This has implications for the informational ejjiciency of the market. Keywords: stock returns; emerging capital markets; trading volume; ARCH/ GARCH models; Athens Stock Exchange. JEL classification: G 14. 1. Introduction The purpose of this paper is to investigate the dynamics of price changes and information flow to the market, as proxied by trading volume/value, in the Athens Stock Exchange (ASE) in Greece. A unique database of daily observa- tions of the composite price index and total trading volume/value are used over the period 1988 to 1993. The paper examines first some empirical regularities concerning the unconditional relationship between trading volume/value and price changes established in the literature for individual financial assets [see e.g. Karpoff (1987)], and for a composite price index [see Gallant et al. (1992)I.l It then examines the more interesting issue of the role of information flow in the conditional volatility. The time varying volatility, a characteristic of financial time series, is modelled by applying autoregressive conditionally heteroskedastic (ARCH) and generalised ARCH (GARCH) models. The paper examines z 0 Blackwell Publishers Ltd 1996, zyxwvutsr 108 Cowley Road, Oxford OX4 1JF. UK and 238 Main Street, Cambridge, MA 02142, USA