International Finance

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

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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.
Open Access
Big data–enabled sign prediction for Borsa Istanbul intraday equity prices
(Elsevier, 2023-12) Kılıç, A.; Güloğlu, B.; Yalçın, Atakan; Üstündağ, A.; International Finance; YALÇIN, Atakan
This paper employs a big data source, the Borsa Istanbul's “data analytics” information, to predict 5-min up, down, and steady signs drawn from closing price changes. Seven machine learning algorithms are compared with 2018 data for the entire year. Success levels for each method are reported for 26 liquid stocks in terms of macro-averaged F-measures. For the 5-min lagged data, nine equities are found to be statistically predictable. For lagged data over longer periods, equities remain predictable, decreasing gradually to zero as the markets absorb the data over time. Furthermore, economic gains for the nine equities are analyzed with algorithms where short selling is allowed or not allowed depending on these predictions. Four equities are found to yield more economic gains via machine learning–supported trading strategies than the equities' own price performances. Under the “efficient market hypothesis,” the results imply a lack of “semistrong-form efficiency.”
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 effects of foreign acquisitions on the value of industry peers
(Cambridge University Press, 2023-03) Yılmaz, Ümit; International Finance; YILMAZ, Ümit
This paper studies how industry peers' stock prices respond when another firm in the industry is acquired by a foreign firm. The average stock price reactions of industry peers in horizontal foreign acquisitions around deal announcements are significantly negative. Peers' returns are more negative in growing, less specialized, and competitive industries. Moreover, the negative stock price reactions of industry peers are related to future decreases in their operating performance. Overall, these results suggest that foreign acquisitions have strong competitive effects for the industry peers of U.S. target companies.
Open Access
Foreign acquisition and credit risk: Evidence from the U.S. CDS market
(Cambridge University Press, 2023-06-17) Yılmaz, Ümit; International Finance; YILMAZ, Ümit
This article empirically analyzes the effect of foreign block acquisitions on U.S. target firms' credit risk as measured by their credit default swap (CDS) spreads. Foreign block purchases lead to a greater increase in the target firms' CDS premia post-acquisition compared to domestic block purchases. This effect is stronger when foreign owners are geographically and culturally more distant, and when they obtain majority control. The findings are consistent with an asymmetric information hypothesis, in which foreign owners are less effective monitors due to information barriers.
Open Access
Managerial discretion and efficiency of internal capital markets
(Elsevier, 2021-10) Şahin, Cansu İskenderoğlu; International Finance; ŞAHİN, Cansu Iskenderoğlu
I use the staggered adoption of state-level antitakeover laws to provide causal evidence that managerial agency problems reduce the allocative efficiency of conglomerate firms. I find that increases in control slack following the passage of antitakeover laws reduces q-sensitivity of investment by 64%. The adverse impact of the laws appears mostly at conglomerate firms that benefited from disciplinary takeover threats prior to the passage of the laws, lacked alternative sources of pressure on management, or had the structural makings to fuel wasteful influence activities and power struggles among managers. These findings suggest that takeover threats impact the efficiency of resource allocation.
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.
Open Access
Numerical discretization of stochastic oscillators with generalized numerical integrators
(Vinča Institute of Nuclear Sciences, 2021) Sirma, A.; Kosker, R.; Akat, Muzaffer; International Finance; AKAT, Muzaffer
In this study, we propose a numerical scheme for stochastic oscillators with additive noise obtained by the method of variation of constants formula using generalized numerical integrators. For both of the displacement and the velocity components, we show that the scheme has an order of 3/2 in one step convergence and a first order in overall convergence. Theoretical statements are supported by numerical experiments.
Open Access
On the numerical schemes for Langevin-type equations
(Karaganda University, 2020) Akat, Muzaffer; Kosker, R.; Sirma, A.; International Finance; AKAT, Muzaffer
In this paper, a numerical approach is proposed based on the variation-of-constants formula for the numerical discretization Langevin-type equations. Linear and non-linear cases are treated separately. The proofs of convergence have been provided for the linear case, and the numerical implementation has been executed for the non-linear case. The order one convergence for the numerical scheme has been shown both theoretically and numerically. The stability of the numerical scheme has been shown numerically and depicted graphically.
Open Access
Political connections and informed trading: Evidence from TARP
(Wiley, 2021-09) Akın, Özlem; Coleman, N. S.; Fons‐Rosen, C.; Peydró, J.-L.; International Finance; PARLAYAN, Özlem Akın
We study insider trading behavior surrounding the largest bank bailout in history: Troubled Asset Relief Program (TARP). In politically connected banks, insider buying during the pre-TARP period is associated with increases in abnormal returns around bank-specific TARP announcement; for unconnected banks, trading and returns are uncorrelated. Results hold across insiders within the same bank and are stronger for finance-related government connections. Through a Freedom of Information Act request, we obtained the previously undisclosed TARP funds requested; the ratio of received to requested funds correlates both with abnormal returns and insider buying behavior in connected banks.
Open Access
Price of regulations: Regulatory costs and the cross-section of stock returns
(Oxford University Press, 2024-01) Ince, B.; Özsöylev, Han Nazmi; International Finance; ÖZSÖYLEV, Han Nazmi
Regulations introduce significant fixed costs and add to operating leverage. Fixed regulatory costs that contribute to operating leverage should generate a risk premium. To explore whether such a premium exists, we introduce a measure of "regulatory operating leverage" that reflects the importance of fixed regulatory costs in a firm's cost structure. Regulatory operating leverage predicts stock returns in the cross-section, and a zero-cost high-low regulatory operating leverage strategy generates positive and significant risk-adjusted return. Finally, the impact of regulatory operating leverage on returns is due to the (systematic) risk contribution of fixed regulatory costs.
Open Access
Product market competition and the value of diversification
(Elsevier, 2023-12) Şahin, Cansu İskenderoğlu; International Finance; ŞAHİN, Cansu Iskenderoğlu
I examine how industry concentration affects the value of diversification. I find that con- glomerates that operate mainly in concentrated industries (concentrated conglomerates) have higher diversification values. Using tariff reductions as competitive shocks, I show that concentrated conglomerates experience significant decline in their valuations and respond aggressively to threats in less-competitive industries.
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.
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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