An Empirical Analysis of the Relationship between New Investors and the Telecommunications Stocks 'Bubble Post the Egyptian Revolution

Abstract

The Egyptian Exchange (EGX) declined 6.25% following the beginning of the Egyptian Revolution of 2011 on the 25^th January. The EGX was closed after the revolution for a period of 55 days, till it was reopened on Wednesday 23^rd March and the market fell by a further 8.9% on reopening. Subsequently, all the market indices soared during the period from the 23^rd of March till the end of May 2011. Therefore, this study shares with some existing works the objective of getting a better understanding of investor behavior during financial bubbles and aims to analyze empirically the relationship between new investors (NI) and the telecommunications stocks’ bubble that occurs after the Egyptian revolution.  A similar methodology is employed as that used in previous studies in particular, the study of Gong, Pan and Shi (2015). The empirical findings of this research effort reveal that (1) the new investors initiated the telecommunications stocks’ bubble; (2) the continuous entrance of new investors in the EGX sustained this bubble; and (3) the slow decline of the average price of telecommunications stocks over time is due to the new investors. Compared with other factors, the continuous stream of new investors was the most robust driving force of the bubble over the whole trading period.

Key Words: Telecommunications Stocks- Financial Bubble- New Investors (NI)-Behavioral Finance- Egyptian Exchange (EGX) -Egyptian Revolution- EGX 30 Index- Black-Scholes value- Volatility- Market Return