Risk aversion and the Athens Stock Exchange

The Athens Stock Exchange has not been feeling very well lately. The September 11 terrorist attack on the United States made the situation even worse, so that the ASE has failed to recover to the same extent as the other European bourses. The ASE’s course has given rise to talk about an illogical market. Can’t they see that most shares are being traded at absurdly low prices? Their market value is far below their book value. Don’t the investors see the absurdity of it all? Asking this question is similar to talking about the absurdity of people canceling their flights after September 11. Why should people be afraid now? Don’t they know that even after the tragic deaths of the plane passengers, it is more dangerous to drive than to take the plane? Still, people trust their cars but many tremble at the sight of an airplane. It is easy to understand this attitude: The car driver feels in control of the vehicle, while the plane passenger does not. Fear, especially after such spectacular and tragic incidents, is not absurd. It is absurd for someone to claim that people should not fear and should continue taking risks. Similarly absurd is the rumor mill that blames the fall of the ASE on evil profiteers. Whoever thinks that some shady conspirators are pushing the stock market lower only has to take advantage and buy. The main determinant of present investor behavior is risk aversion. This will be overcome only if good news appears. Not until then will the current pessimistic climate change. But where, indeed, is this good news? Last, it said that three new measures (a 200,000-drachma annual income supplement to households in underprivileged, low-income areas, a 48,000-drachma monthly benefit to last 12 months for the long-term unemployed aged 45-65, and a 100,000-drachma annual benefit for each child up to 16 years of age in low-income families) are expected to improve the picture further.

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