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Now showing 1 - 10 of 42

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Trading ambiguity: A tale of two heterogeneities
(Wiley, 2023) Mukerji, S.; Özsöylev, Han Nazmi; Tallon, J. M.; International Finance; ÖZSÖYLEV, Han Nazmi
We consider markets with heterogeneously ambiguous assets and heterogeneously ambiguity-averse investors whose preferences are a parsimonious extension of the mean–variance framework. We study portfolio choice and trade upon arrival of public information, and show systematic departures from the predictions of standard theory, that occur in the direction of empirical regularities. In particular, our theory speaks to several phenomena in a unified fashion: the asset allocation puzzle, the observation that earnings announcements are followed by significant trading volume with small price change, and that increases in uncertainty are positively associated with increased trading activity and portfolio rebalancing toward safer assets.
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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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Cash flow news, discount rate news, and momentum
(Elsevier, 2016-11) Çeliker, Umut; Kayaçetin, Volkan; Kumar, R.; Sonaer, G.; International Finance; KAYAÇETİN, Nuri Volkan; ÇELİKER, Umut
We examine the effect of aggregate cash flow news and discount rate news on momentum returns. We find that momentum profits are higher following aggregate positive cash flow news, even in down markets or low sentiment periods. This finding expands on the evidence in Cooper et al. (2004) that momentum is significant only when past market returns are non-negative and in Antoniou et al. (2013) that momentum is weaker when sentiment is pessimistic. We find that the higher momentum profits during aggregate positive cash flow news periods are primarily driven by the losers continuing to underperform in subsequent periods. Our findings are consistent with the Hong and Stein (1999) model in the sense that gradual diffusion of contradictory news is accentuated when change in wealth is positive and relatively more permanent.
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
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
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.
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A prudential paradox: The signal in (not) restricting bank dividends
(Wiley, 2022) Güntay, Levent; Jacewitz, S.; Pogach, J.; International Finance; GÜNTAY, Levent
By restricting dividends in the weakest banks, prudential regulators counterintuitively induce more capital payouts in marginal banks. The potential for bank runs exacerbates the incentive to signal strength through dividend payments. Regulatory restrictions on those payments can be used to achieve the first-best outcome, but only if the prevailing capital requirements are sufficiently high. In a crisis, the optimal dividend policy is more restrictive, since it allows the weak but solvent banks to pool with the strong. Finally, we show that the optimal release of regulatory bank information depends critically on the regulator's information and dividend restriction policies.
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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.
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 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.