International Finance

Permanent URI for this collectionhttps://hdl.handle.net/10679/314

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Now showing 1 - 20 of 36

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An approximation of stochastic telegraph equations
(AIP Publishing, 2012) Ashyralyev, A.; Akat, Muzaffer; International Finance; AKAT, Muzaffer
In the present paper the two-step difference scheme for the telegraph equation is presented. The convergence estimate for the solution of the difference scheme is established. In applications, the convergence estimates for the solution of difference scheme for the numerical solution of two problems for hyperbolic equations are obtained. The theoretical statements for the solution of this difference scheme are supported by the results of the numerical experiment.
Open Access
Adaptive pairs trading strategy performance in Turkish derivatives exchange with the companies listed on Istanbul stock exchange
(Springer International Publishing, 2012-03-02) Bolgün, K. E.; Kurun, E.; Güven, Serhat; Güven, Serhat
We implemented model-driven statistical arbitrage strategies in Turkish equities market. Trading signals are generated by optimized parameters of distance method. When the trade in signal is triggered by the model, market-neutral portfolio is created by long in the synthetic ETF, which is based on constrained least squares regression of selected Istanbul Stock Exchange stocks and short in Turkish Derivatives Exchange (Turkdex) index futures contract. We performed pairs trading strategy based on a comparative mean reversion of asset prices with daily data over the period February 2005 through July 2011 in Istanbul Stock Exchange (ISE) and Turkdex. We constructed a hypothetical ISE30 ETF Index on a daily basis in order to originate pairs trading strategy with Turkdex. Because of the leverage rule of (1–10) index futures contracts, we had to evaluate spot stock pairs formation with futures contracts pairs strategy. The results indicate that applied pairs strategy produced overall returns of 901 per cent during the investment period, whereas naive strategy (buy and hold ISE-30 index) return for the same period was 111 per cent. Similar outperformance was observed in the Sharpe and Sortino ratios.
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Systematic risk and the cross section of hedge fund returns
(Elsevier, 2012-10) Bali, T. G.; Brown, S. J.; Çağlayan, Mustafa Onur; Economics; ÇAĞLAYAN, Mustafa Onur
This paper investigates the extent to which market risk, residual risk, and tail risk explain the cross-sectional dispersion in hedge fund returns. The paper introduces a comprehensive measure of systematic risk (SR) for individual hedge funds by breaking up total risk into systematic and fund-specific or residual risk components. Contrary to the popular understanding that hedge funds are market neutral, we find that systematic risk is a highly significant factor explaining the dispersion of cross-sectional returns while at the same time measures of residual risk and tail risk seem to have little explanatory power. Funds in the highest SR quintile generate 6% more average annual returns compared with funds in the lowest SR quintile. After controlling for a large set of fund characteristics and risk factors, systematic risk remains positive and highly significant, whereas the relation between residual risk and future fund returns continues to be insignificant. Hence, systematic risk is a powerful determinant of the cross-sectional differences in hedge fund returns.
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An approximation of stochastic hyperbolic equations: case with Wiener process
(Wiley, 2013-06) Ashyralyev, A.; Akat, Muzaffer; International Finance; AKAT, Muzaffer
In the present paper, the two-step difference scheme for the Cauchy problem for the stochastic hyperbolic equation is presented. The convergence estimate for the solution of the difference scheme is established. In applications, the convergence estimates for the solution of difference schemes for the numerical solution of four problems for hyperbolic equations are obtained. The theoretical statements for the solution of this difference scheme are supported by the results of the numerical experiment.
Open Access
Development and calibration of a currency trading strategy using global optimization
(Springer Science+Business Media, 2013-06) Çağlayan, Mustafa Onur; Pinter, Janos D.; Economics; Industrial Engineering; ÇAĞLAYAN, Mustafa Onur; PINTER, Janos
We have developed a new financial indicator—called the Interest Rate Differentials Adjusted for Volatility (IRDAV) measure—to assist investors in currency markets. On a monthly basis, we rank currency pairs according to this measure and then select a basket of pairs with the highest IRDAV values. Under positive market conditions, an IRDAV based investment strategy (buying a currency with high interest rate and simultaneously selling a currency with low interest rate, after adjusting for volatility of the currency pairs in question) can generate significant returns. However, when the markets turn for the worse and crisis situations evolve, investors exit such money-making strategies suddenly, and—as a result—significant losses can occur. In an effort to minimize these potential losses, we also propose an aggregated Risk Metric that estimates the total risk by looking at various financial indicators across different markets. These risk indicators are used to get timely signals of evolving crises and to flip the strategy from long to short in a timely fashion, to prevent losses and make further gains even during crisis periods. Since our proprietary model is implemented in Excel as a highly nonlinear “black box” computational procedure, we use suitable global optimization methodology and software—the Lipschitz Global Optimizer solver suite linked to Excel—to maximize the performance of the currency basket, based on our selection of key decision variables. After the introduction of the new currency trading model and its implementation, we present numerical results based on actual market data. Our results clearly show the advantages of using global optimization based parameter settings, compared to the typically used “expert estimates” of the key model parameters.
Open Access
The real estate and credit bubble: evidence from Spain
(Springer Science+Business Media, 2014-08) Akın, Özlem; Montalvo, J. G.; Villar, J. G.; Peydró, J.-L.; Raya, J. M.; International Finance; PARLAYAN, Özlem Akın
We analyze the determinants of real estate and credit bubbles using a unique borrower-lender matched dataset on mortgage loans in Spain. The dataset contain real estate credit and price conditions (loan principal and spread, and the appraisal and market price) at the mortgage level, matched with borrower characteristics (such as income, labor status and contract) and the lender identity, over the last credit boom and bust. We find that lending standards are softer in the boom than in the bust. Moreover, despite some adjustment in lending conditions in the good times depending on borrower risk, the results suggest too soft lending standards and excessive risk-taking in the boom. For example, mortgage spreads for non-employed are identical to employed borrowers during the boom. Banks with worse corporate governance problems soften even more the standards. Finally, we analyze the mechanism by which banks could increase the supply of mortgage loans despite of regulatory restrictions on LTVs. The evidence is consistent with banks encouraging real estate appraisal firms to introduce an upward bias in appraisal prices (29 %), to meet loan-to-value regulatory thresholds (40 % of mortgages are just bunched on these limits), thus building-up the credit and the real estate bubble.
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Macroeconomic risk and hedge fund returns
(Elsevier, 2014-10) Bali, T. G.; Brown, S. J.; Çağlayan, Mustafa Onur; Economics; ÇAĞLAYAN, Mustafa Onur
This paper estimates hedge fund and mutual fund exposure to newly proposed measures of macroeconomic risk that are interpreted as measures of economic uncertainty. We find that the resulting uncertainty betas explain a significant proportion of the cross-sectional dispersion in hedge fund returns. However, the same is not true for mutual funds, for which there is no significant relationship. After controlling for a large set of fund characteristics and risk factors, the positive relation between uncertainty betas and future hedge fund returns remains economically and statistically significant. Hence, we argue that macroeconomic risk is a powerful determinant of cross-sectional differences in hedge fund returns.
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CEO overconfidence, reit investment activity and performance
(Wiley, 2015) Eichholtz, P.; Yönder, Erkan; International Finance; YÖNDER, Erkan
This is the first article to study the effects of overconfidence on trading activity and performance in real estate. The article looks at Real Estate Investment Trusts (REITs), as their investments and divestments can be identified with precision. We look at the effect of CEO overconfidence on investment activity and separately investigate property acquisitions and dispositions. We find that REITs with overconfident CEOs tend to invest more; these REITs acquire more assets and are less likely to sell assets than their counterparts if they have enough discretionary cash. Valuable private information is not the main driver for CEOs to be net buyers of company shares: the shares of their companies perform relatively weakly. In addition, we find that overconfident managers have lower property investment performance measured by net operating income and gain on sale of real estate.
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Gender-specific preferences in global performance management - an empirical study of male and female leaders in a multinational context
(Wiley, 2015-01) Festing, M.; Knappert, Lena; Kornau, A.; International Business and Trade; KNAPPERT, Lena
This study investigates gender-specific preferences in one important human resource management (HRM) practice—namely, global performance management (GPM). GPM has major consequences for the career advancement of women and can therefore also represent a barrier if it is rooted in traditional male corporate cultures. As prior research suggests that the underrepresentation of women in top management positions is a worldwide phenomenon with only minor national variations, empirical data were collected in five countries belonging to various cultural clusters: China, France, Germany, South Africa, and the United States. For all countries, the results show that preferences vary significantly between male and female managers for crucial parts of the GPM system (actors’ roles, evaluation methods, feedback procedures, and GPM purposes). This study confirms that the preferences of female managers do not match more male-oriented GPM practices, indicating that female managers are less satisfied with existing GPM procedures. It was particularly surprising to find that these gender differences do not vary according to cultural background, but rather display the same pattern in all investigated countries. These findings not only have the potential to explain the often-limited career advancement of women, but also have major implications for multinational companies aiming to retain talented women.
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Do mutual funds herd in industries?
(Elsevier, 2015-03) Çeliker, Umut; Chowdhury, J.; Sonaer, G.; International Finance; ÇELİKER, Umut
This study examines whether mutual funds herd in industries and the extent to which such herding impacts industry valuations. Using two herding measures proposed by Lakonishok et al. (1992) and Sias (2004) we document that mutual funds herd in industries. We show that industry herding is not driven by fund flows and that it is not a manifestation of individual stock herding. We also find evidence indicating that herding in industries by mutual funds is related to the industry momentum phenomenon first documented by Moskowitz and Grinblatt (1999), but it does not drive industry valuations away from their fundamentals.
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The case against active pension funds: evidence from the Turkish private pension system
(Elsevier, 2015-06) Gökçen, U.; Yalçın, Atakan; International Finance; YALÇIN, Atakan
Using data on private Turkish pension funds we show that most active managers are not able to provide performance beyond what could be achieved by passive indexing. The average fund beats its benchmark by only 26 basis points, before fees. We also observe herding behavior among managers' asset allocation decisions which can potentially explain their lack of overperformance. Our results strongly support the need for low-cost index funds in emerging market countries that are reforming their pension schemes. We further recommend regulatory oversight on the “activeness” of funds and introduction of default plans with more balanced asset allocations.
Open Access
Should cross-border banking benefit from the financial safety net?
(Elsevier, 2016) Bertay, Ata Can; Demirgüç-Kunt, A.; Huizinga, H.; International Finance; BERTAY, Ata Can
Using bank-level data from 84 countries, we find that a higher degree of bank internationalization is associated with higher interest expenses. Internationalization is proxied by a bank's share of foreign liabilities in total liabilities or a Herfindahl index of international liability concentration. Bank interest expenses rise relatively more with internationalization if the bank is underperforming or headquartered in a country with weak public finances, and especially at times of weak world output growth. These results suggest that liability holders of distressed internationalized banks expect less from the financial safety net since lack of an efficient recovery and resolution regime for international banks can make their insolvency very costly to deal with.
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Construction, real estate mortgage market development and economic growth in Turkey
(2016) Erol, Işıl; International Finance; Abdulai, R. T.; Obeng-Odoom, F.; Ochieng, E.; Maliene, V.; EROL, Işıl
In line with the "economic sectors" definition of the Turkish Statistical Institute (2013), it is possible to define the overall real estate (RE) sectors in terms of two main components, the construction industry and other RE business activities.
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Modeling heterogeneity in the satisfaction, loyalty intention and shareholder value linkage: a cross industry analysis at the customer and firm level
(American Marketing Association, 2016-02) Larivière, B.; Keiningham, T. L.; Aksoy, L.; Yalçın, Atakan; Morgeson III, F. V.; Mithas, S.; International Finance; YALÇIN, Atakan
This study examines the relationship between customer satisfaction, loyalty intention and shareholder value at the firm and individual customer level. The authors also explore industry differences by using a multilevel and random-effects approach in which individual customer scores are nested within firm-level data and the estimated interrelationships are treated as random coefficients that are explained by industry characteristics. They compile a unique and detailed data set, which covers 10 years of information on 137 firms, and includes a matched sample of 189,069 customers from multiple sources such as the ACSI, CRSP and COMPUSTAT, to yield three important insights. First, aggregate firm level effects may overestimate the impact that satisfaction has at the individual customer level. Second, a consideration of loyalty intention or repurchase intention as the mediator can improve our understanding of the satisfaction- shareholder value relationship, and that the relationship can vary across firms. Finally, the influence of satisfaction and loyalty intentions on shareholder value varies by industry. Implications of findings for researchers, managers and investors are discussed.
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The economic effects of owner distance and local property management in US office markets
(Oxford Publishing, 2016-07-04) Eichholtz, P.; Holtermans, R.; Yönder, Erkan; International Finance; YÖNDER, Erkan
This paper is one of the first empirical studies to investigate the role of owner proximity or distance on the performance of commercial real estate and it is the first to analyze the economic benefits of property management in that regard. Using a large dataset of U.S. offices we analyze the relationship between investor distance to their assets and the effective rent of these assets, and study the extent to which property managers can influence this relation. We construct propensity score weighted hedonic rent models to control for other known rent determinants. It turns out that proximity matters: holding everything else constant, investors located closely to their office properties are able to extract significantly higher rents from these assets, especially if these buildings are of low quality. Interestingly, property managers can affect this relation, mitigating the adverse effects of investor distance on effective office rents. Especially if the property owner does not reside in the same state as the building, external property management is of importance, most prominently so for class-B office buildings.
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Turn-of-the-month effect: New evidence from an emerging stock market
(Elsevier, 2016-08) Kayaçetin, Volkan; Lekpek, Senad; International Finance; KAYAÇETİN, Nuri Volkan; Lekpek, Senad
This paper analyzes the turn-of-the-month (ToM) effect in Turkish equity returns. We show that the ToM effect is strongly significant in BIST100 index over 1988–2014, and distinct from other calendar anomalies. In particular, the mean daily index return is 0.46% in the three-day period that covers the last trading day of each month and the first two trading days of the next month, and 0.09% in the remaining days. The ToM effect is more significant following months with (a) significant information flow and (b) above average market performance, and the fraction of index returns generated within the ToM period increases secularly from 39% over 1988–1996 to 49% over 1997–2005 and to 86% over 2006–2014. A similar month-end seasonal does not exist in index trading volume or realized volatility, ruling out standard liquidity or risk-based explanations. Estimating an e-GARCH model with daily index returns, however, we link the ToM effect to a decline in expected volatility in the days leading to month-turns. These findings resonate best with a story where gradual resolution of uncertainty following high information risk periods releases a large pool of “liquid funds” accumulated during such periods into the equity market, creating an abundance of liquidity and pushing equity prices up.
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Analysis of cross-country variations in the depth of European mortgage markets
(Springer Science+Business Media, 2016-09) Kutlukaya, M.; Erol, Işıl; International Finance; EROL, Işıl
To date, quantitative analysis on the depth of mortgage markets across a broad set of countries has been very limited. This paper uses a rich and balanced data set on 31 European countries to investigate the cross-country variations in the depth of mortgage markets during the period 2005–2012. The present paper might be accepted as the updated and enriched version of existing research for the European region in terms of the coverage of countries, historical data and the empirical analyses. Our empirical findings reveal that developed countries have sizeable residential mortgage markets and this is mainly associated with higher urbanization rates and stronger legal rights. One of the most notable results of this study is that, statistical significance of explanatory variables in modeling the depth of the mortgage markets depends heavily on both the variables, countries (regions) included in the models and the regression methodology used. Hence, we argue that strong conclusions based on such analyses should be avoided and the findings of previous research on the variations of the depth of mortgage markets should be carefully evaluated.
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Securitization and economic activity: The credit composition channel
(Elsevier, 2017-02) Bertay, Ata Can; Gong, D.; Wagner, W.; International Finance; BERTAY, Ata Can
Using an international panel of 104 countries over the period 1995–2012, we analyze the relationship between country-level securitization and economic activity. Our findings suggest that securitization is negatively related to various proxies of economic activity – even prior to the crisis of 2007–2009. We explain this finding as the results of securitization spurring consumption at the expense of investment and capital formation. Consistent with this, we find that securitization of household loans is negatively associated with economic activity, whereas business securitization displays a weak positive association with it, and that household securitization increases an economy's consumption-investment ratio. Our results inform recent initiatives aimed at reviving securitization markets, as they indicate that the impact of securitization crucially depends on the underlying collateral.
Open Access
Market-neutral trading with fuzzy inference, a new method for the pairs trading strategy
(Kaunas University of Technology, 2019) Bayram, M.; Akat, Muzaffer; International Finance; AKAT, Muzaffer
Pricing of financial instruments and stock market predictions is a specific and relatively narrow field, which has been mainly explored by mathematicians, economists and financial engineers. Prediction to make profits in a martingale domain is a hard task. Pairs trading, a market neutral arbitrage strategy, attempts to resolve the drawback of unpredictability and yield market independent returns using relative pricing idea. If two securities have similar characteristics, so should their prices. Deviation from the acceptable similarity range in price is considered an anomaly, and whenever noticed, trading is executed assuming the anomaly will correct itself. This work proposes a fuzzy inference model for the market-neutral pairs trading strategy. Fuzzy logic lets mimicking human decision-making in a complex trading environment and taking advantage of arbitrage opportunities that the crisp models may miss to acquire for trade decision-making. Spread between two co-integrated stocks and volatility of the spread are used as decision-making inputs. The main focus of this study is the contribution of the fuzzy engine to the existing pairs trading strategies based on the spread measure. Widespread classical 'crisp' techniques are chosen and compared with the developed fuzzy' model. Significant enhancement on the performance of the trading strategies has been reported.
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Global trends in liquidity creation: The role of the off-balance sheet
(Peter Lang AG, 2019-03-28) Akın, Özlem; Özsoy, Satı Mehmet; Economics; International Finance; PARLAYAN, Özlem Akın; ÖZSOY, Satı Mehmet
Banks create liquidity by transforming liquid liabilities into illiquid assets and this is one of their main functions. Yet excessive liquidity creation, especially via off-balance sheet activities, might have contributed to the 2008-2009 financial crisis. In this chapter, we analyze the dynamics of liquidity creation in Turkey and the United States, and the contribution of off-balance sheet activities therein.

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