Gökçe Soydemir

Time-Varying Market Price of Risk and Investor Sentiment: Evidence from a Multivariate GARCH Model

We test a conditional version of the CAPM in the U.S. equity market using a parsimonious generalized autoregressive conditional heteroskedasticity (GARCH) model in which the risk premia, betas, and correlations vary through time. We introduce U.S. investor sentiment from two surveys as conditional information variables, whereas previous studies generally use economic fundamentals. We assume that investor sentiment is not entirely irrational and decompose it into its irrational and rational components; using the irrational components as information variables. We find that irrational investor sentiment measures are statistically significant, and contain information which may be valuable in asset pricing models.

Information technology, revenue creation and growth: an international comparison of causality

In this paper, we examine the extent of the relationship between PC installation and revenue creation using Gross Domestic Product (GDP) growth in different economies and by running a series of Granger causality tests. Our findings show that in developed economies the total PC installation and the PC installation in home market Granger cause GDP growth, whereas GDP growth only Granger causes the PC installation in the market for education. However, in developing economies, there appears to be a unidirectional causality in that GDP growth Granger causes total PC installation, PC installation in education and PC installation in business and government markets. We do not find any PC installation variables Granger causing GDP growth, including PC installation in home market. Overall, our results show that developing economies, unlike developed economies, do not gain from investing in Information Technology (IT) in the short run.

For Whom Hurdle Rate and High-Watermark Exist?

In this study, we first conduct multinomial logistic regression analysis to see how hedge fund attributes affect hedge fund managers’ decision of whether to offer a hurdle rate and/or high-watermark. Hedge funds taking more risky position and collecting high performance fee are more likely to offer hurdle rate and/or high-watermark. Second, we conduct cross-sectional regression analysis to see how hedge fund attributes affect hedge fund performance. Our results indicate that hurdle rate and high-watermark are restrictions for hedge fund managers on collecting fee and that hurdle rate and high-watermark cannot be considered to be incentives. We also find that hedge funds collecting high performance fee and having large amount of funds are more likely to outperform those collecting low performance fee and having small amount of funds. While conducting cross-sectional regression analysis, we use three different measures of hedge fund performance: alpha, palpha and Sharpe ratio. Alpha and palpha are obtained from the optimal model by investment strategy controlling for hedge fund risk associated with risk factors different by its investment strategy. In addition, we control for survivorship and instant history biases. So, our results from alpha and palpha are more credible than those of Soydemir et al. (2012) which employs only Sharpe ratio.

Investor Behavior, Hedge Fund Returns and Strategies

We quantify risks associated with investor behavior using several asset pricing models and hedge fund data. After finding that irrational sentiments play a role in hedge fund returns, our multi-beta CAPM estimations reveal that beta belonging to irrational component varies around .037 for risky hedge funds and .018 for relatively less risky ones. Investors can use this irrational beta to gauge the extent of irrational sentiments prevailing in markets and compare the values in turbulent periods with more tranquil periods to re-adjust their portfolios and use these betas as an early warning sign of future trends. It can also guide investors in avoiding those funds that display greater irrational behavior. Our approach offers investors a solid quantitative rather than subjective approach in assessing the oncoming of a financial downturn and in doing so better protect against unpredicted losses that may result from irrational trading.

Global Convergence of Health Care Financing in OECD Countries: An Equilibrium Based Asset Pricing Approach

We provide an equilibrium based asset pricing framework to investigate the patterns in health care finance in 30 OECD countries. Using purchasing power parity adjusted data we find that the sample of countries together as a whole does not exhibit a pattern of convergence. However, there is some evidence of regional convergence within NAFTA, the E.U. and those countries with similar economic conditions such as the developing nations. Interestingly when compared to pre-1980 the standard deviation of financing expenditures divided by average expenditures (variation coefficient) increases when the U.S. is included in the G7 countries and decreases when the U.S. is excluded. Thus in this category of nations the U.S. appears to exhibit somewhat of a unique pattern. However, based on the benchmark theoretical price generated by CAPM overpricing (the difference between the actual minus the theoretical) tends to decrease over time with respect to the U.S., but tends to increase most notably for Australia, the U.K., Norway, Ireland, Turkey, the Check Republic and Greece. As their consumption of health care increase at an increasing rate, we note that most countries exhibit a converging pattern beginning from the 1980s. Developing nations increasingly exhibit excessive health expenditures. The results are consistent with the view that globalization in health care occurs at varying speeds in the U.S. and other OECD countries and trading blocks. Lastly, the CAPM predicted estimates backed by income elasticities, point towards convergence of countries as groups which seem to indicate greater opportunities for arbitrage exist across trading blocks and those countries with dissimilar economic conditions, but not as much within trading blocks and countries with similar economic conditions.

Dynamic Exposure of Hedge Funds to the Changes in the Risk Factors

This paper models exposure of hedge fund to risk factors and examines time-varying performance of hedge funds. From existing models such as ABS-factor model, SAC-factor model, and four-factor model, we extract the best six factors for each hedge fund portfolio by investment strategy. Then, we find combinations of risk factors that most explain variance in performance of each hedge fund portfolio by investment strategy. The results show instability of coefficients in the performance attribution regression. Incorporating time-varying factor exposure feature would be the best way to appropriately measure hedge fund performance. Furthermore, the optimal models with fewer factors exhibit greater explanatory power than existing models. Time-varying model customized by investment strategy of hedge funds would clearly show how sensitive to risk factors managements of hedge funds are according to market conditions.

Revenue enhancement through mergers and acquisitions: wealth effects of method of payment

Many firms enhance revenue through mergers and acquisitions deals because synergy occurs when the value of the combined firm after the merger is greater than the sum of the value of the bidding firm and the value of the target firm before the merger. This paper analyses value creation of mergers and acquisitions in ten Asian emerging markets over the past 12 years. The stock markets react positively to M%A deals around the time of the announcement in spite of variation in the method of payment or the types of the target form. Method of payment affects abnormal returns. The difference between cash only payment and stock only payment is statistically significant. When the target is a private firm or a subsidiary, bidder firms realise higher positive abnormal returns than that when the target is a public firm. However, the differences (public vs. private and public vs. subsidiary) are not statistically significant at conventional levels.