Date of Submission

Spring 2013

Academic Program

Economics and Finance

Project Advisor 1

Dimitri Papadimitriou

Abstract/Artist's Statement

In this project we determine the driving forces behind the creation of the Greek stock market bubble of 1999 and the policy implications that stem from its analysis. In particular, we examine the role of the Bank of Greece, the government and the stock market regulators. The most important results include the following: firstly, the monetary and the fiscal policies were tight and did not facilitate the creation of the bubble. Secondly, the rise in the stock market was to a large extent government driven. Stock market growth was deliberately promoted to ensure a favorable for the governing party result in the euro elections of 1999 and the national elections in April 2000. Thirdly, the media as well as bankers and various analysts also contributed to the creation of an optimistic environment. Fourthly, the Hellenic Capital Market Commission is also responsible for the creation of the bubble as the legal framework of the market was neither stable nor strong before or during the culmination of the bubble. We place the Greek stock market bubble of 1999 in the context of the literature on asset bubbles while we find significant market inefficiencies by applying Campbell's and Shiller's (1998, 2001) models in the case of Greece. The project ends with important policy advice that stem from the examination of the bubble.

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