International Finance
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Book PartPublication Metadata only 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 MehmetBanks 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.ArticlePublication 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, AtakanThis 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.”ArticlePublication 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 NazmiRegulations 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.ArticlePublication Open Access Product market competition and the value of diversification(Elsevier, 2023-12) Şahin, Cansu İskenderoğlu; International Finance; ŞAHİN, Cansu IskenderoğluI 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.ArticlePublication Metadata only Trading ambiguity: A tale of two heterogeneities(Wiley, 2023) Mukerji, S.; Özsöylev, Han Nazmi; Tallon, J. M.; International Finance; ÖZSÖYLEV, Han NazmiWe 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.ArticlePublication Open Access The effects of foreign acquisitions on the value of industry peers(Cambridge University Press, 2023-03) Yılmaz, Ümit; International Finance; YILMAZ, ÜmitThis 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.ArticlePublication 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, ÜmitThis 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.Conference ObjectPublication Metadata only An explainable credit scoring framework: A use case of addressing challenges in applied machine learning(IEEE, 2022) Güntay, Levent; Bozan, E.; Tigrak, U.; Durdu, T.; Ozkahya, G. E.; International Finance; GÜNTAY, LeventWhile Machine Learning (ML) classification algorithms can accurately classify a borrower's credit risk, the determinants of the credit score cannot be interpreted clearly by customers, decision makers and auditors. The lack of transparency of black-box credit scoring mechanisms reduces the trust in the banking system and has serious implications for the financing and growth of businesses. Recent regulations in the European Union and the United States require that credit decision mechanism should by explainable and transparent. We present a framework for developing an explainable credit scoring model. Our scientific novelty is to follow a simple and parsimonious Surrogate approach for credit scoring. This approach estimates an explainable white-box model that effectively fits to the in-sample forecasts of the most accurate 'black-box' model. We implement the Surrogate credit risk framework using check transactions data provided by a Turkish bank. We find that the Surrogate tree's performance is sufficiently close to performance of the most accurate black-box XGBoost model. Overall, our findings show that it is possible to develop a high-performing explainable credit scoring model with a minimal decrease in model accuracy.ArticlePublication Metadata only A prudential paradox: The signal in (not) restricting bank dividends(Wiley, 2022) Güntay, Levent; Jacewitz, S.; Pogach, J.; International Finance; GÜNTAY, LeventBy 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.ArticlePublication 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, MuzafferIn 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.ArticlePublication Open Access Managerial discretion and efficiency of internal capital markets(Elsevier, 2021-10) Şahin, Cansu İskenderoğlu; International Finance; ŞAHİN, Cansu IskenderoğluI 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.ArticlePublication Open Access On the numerical schemes for Langevin-type equations(Karaganda University, 2020) Akat, Muzaffer; Kosker, R.; Sirma, A.; International Finance; AKAT, MuzafferIn 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.ArticlePublication Metadata only Anticipating the financial crisis: evidence from insider trading in banks(Oxford University Press, 2020-04) Akın, Özlem; Marín, J. M.; Peydro, J. - L.; International Finance; PARLAYAN, Özlem AkınBanking crises are recurrent phenomena, often induced by excessive bank risk-taking, which may be due to behavioural reasons (over-optimistic banks neglecting risks) and to conflicts of interest between bank shareholders/managers and debtholders/taxpayers (banks exploiting moral hazard). We test whether US banks' stock returns in the 2007-8 financial crisis are associated with bank insiders' sales of their own bank's shares in the period prior to 2006Q2 (the peak and reversal in real estate prices). We find that top-five executives' sales of shares predict bank performance during the crisis. Interestingly, effects are insignificant the sales of independent directors and other officers. Moreover, the top-five executives' impact is stronger for banks with higher exposure to the real estate bubble, where a one standard deviation increase of insider sales is associated with a 13.33 percentage point drop in stock returns during the crisis period. Finally, even though bankers in riskier banks sold more shares (furthering their own interests), they did not change their bank's policies, for example, by reducing bank-level exposure to real estate. The informational content of bank insider trading before the crisis suggests that insiders knew that their banks were taking excessive risks, which has important implications for theory, public policy and the understanding of crises, as well as a supervisory tool for early warning signals.ArticlePublication Metadata only Algorithmic pairs trading with expert inputs, a fuzzy statistical arbitrage framework(IOS Press, 2020) Bayram, M.; Akat, Muzaffer; Bulkan, S.; International Finance; AKAT, MuzafferPairs trading is a widespread market-neutral trading strategy aiming to utilize the relationship between pairs of financial instruments in efficient markets, where predictability of separate asset movements is theoretically not possible. The implication of trading pairs, following statistical analysis, is to buy the underpriced asset while short selling the overpriced. The predicted price relationship is determined through analysis of historical spread data between the members of the corresponding pair. The investor expects the price difference, in an efficient market, should converge and stocks return to their ‘fair value’, where the positions are closed and profit is realized. The main focus of this study is the contribution of the fuzzy engine to the existing pairs trading strategy. Widespread classical ‘crisp’ technique is chosen, utilized and compared with the developed ‘fuzzy’ model throughout the paper. In order to further improve this contribution, the expert opinions extracted from the Bloomberg database are also integrated into the fuzzy decision-making process. In most studies, transaction costs are simply ignored. As a final robustness check, the transaction costs are also considered. The improvement reached by the developed fuzzy technique is observed to be even more remarkable in this case.ArticlePublication 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 AkınWe 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.ArticlePublication 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, MuzafferPricing 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.ArticlePublication Metadata only A concave security market line(Elsevier, 2019-09) De Giorgi, E. G.; Post, T.; Yalçın, Atakan; International Finance; YALÇIN, AtakanWe provide theoretical and empirical arguments in favor of a diminishing marginal premium for market risk. In capital market equilibrium with binding portfolio restrictions, investors with different risk aversion levels generally hold different sets of risky securities. Whereas the traditional linear relation breaks down, equilibrium can be described or approximated by a concave relation between expected return and market beta, and a concave relationship between market alpha and market beta. An empirical analysis of U.S. stock market data confirms the existence of a significant concave cross-sectional relation between average return and estimated market beta. We estimate that the market risk premium is at least four to six percent per annum, substantially above traditional estimates. A practical implication for active portfolio managers is that the alpha of "betting against beta" strategies seems dominated by the medium-minushigh-beta spread rather than the low-minus-medium-beta spread. The success of such strategies thus largely depends on underweighting or short selling high-beta stocks.ArticlePublication Metadata only Corporate diversification and the cost of debt: evidence from REIT bank loans and mortgages(Springer, 2020-11) Demirci, İ.; Eichholtz, P.; Yönder, Erkan; International Finance; YÖNDER, ErkanThis paper investigates whether corporate diversification by property type and by geography reduces the costs of debt capital. It employs asset-level information on the portfolios of U.S. REITs to measure diversification and looks at two of their main sources of debt capital: 1,173 commercial mortgages and 952 bank loans. The paper finds that diversification across different property types does indeed dependably reduce the cost of these different types of debt. The effect is about 7 basis points for bank loans if a firm’s property Herfindahl Index is lowered by one standard deviation and this effect gets stronger for REITs with worse financial health – as measured by the interest coverage ratio. The corresponding effect for commercial mortgages is around 22 basis points for collateral diversification by property type. After the crisis, the salience of the collateral asset increases. For diversification across regions, we do not find a consistent relationship between real asset diversification and loan pricing.ArticlePublication 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, SerhatWe 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.Book PartPublication Metadata only 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, IşılIn 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.