N. Bulent Gultekin

Stock market seasonality : International Evidence

Abstract This study examines empirically stock market seasonality in major industrialized countries. Evidence is provided that there are strong seasonalities in the stock market return distributions in most of the capital markets around the world. The seasonality, when it exists, appears to be caused by the disproportionately large January returns in most countries and April returns in the U.K. With the exception of australia, these months also coincide with the turn of the tax year.

Option Pricing Model Estimates: Some Empirical Results

In a seminal paper, Black and Scholes [3] presented a closed-form valuation model for European options. Merton [11] later demonstrated that the BlackScholes model for valuing European call options is equally applicable to American call options written on stocks that do not pay dividends or on call options that are protected against dividend payouts. Closed-form solutions to options on stocks that pay dividends at known, discrete time intervals have recently been established by Roll [14] and Geske [9]. Despite the enormous interest that the BlackScholes model has generated in both the academic and

An empirical examination of the implications of arbitrage pricing theory

Abstract This paper presents a comprehensive set of tests of the implications of the Arbitrage Pricing Theory. We find, unlike previously reported results, a very limited relationship between the expected returns and the covariance (factor loadings) measures of risk. Furthermore, unique variance measures of risk, while generally making only small contributions to the explanation of asset returns, turn out to be significant about as frequently as the coveriance measures of risk — which is inconsistent with the Arbitrage Pricing Theory model. The intercept tests are more mixed but provide only limited support to the model.

Comment: A Test of Stone's Two-Index Model of Returns

In a recent paper Lloyd and Shick (LS) [4] report empirical results of tests of Stones [7] two-factor model. Based on a sample of 60 banks and the 30 Dow Jones stocks, LS conclude that their findings generally support Stones model. That is, an “interest rate risk†proxy appears to explain an additional portion of the variability of the sampled security returns over and above the variability due to an equity market proxy.

Duration: Response to critics: Comment

I n the Winter 1987 issue of this Journal, G. Bierwag, G. Kaufman, C. Latta, and G. Roberts (BKLR) disagree with the results in the paper, “Alternative Duration Specifications and Measurement of Basis Risk: Empirical Tests,” by B. Gultekin and R. Rogalski (GR) published elsewhere.’ The central theme of the BKLR paper goes something like this: If an empirical test rejects a theory because it uses the theory’s own assumptions, which are known to be false, then it is an invalid test. We believe this is a ludicrous argument. We argue that what BKLR have to say does not negate any of our major points. To set the record straight, GR found that 1. Duration measures D1 to D7 are virtually indistinguishable empirically from one another and from maturity in explaining actual bond returns.’ 2. Simple-minded factor models performed better empirically than duration measure D1. 3. Bond returns are not linear with respect to duration measure D1 as well as duration measures D2 to D7. 4. Bond portfolios with identical durations D1 but 83

Validating Return-Generating Models

Performance measurement and event studies frequently assume a specific stochastic process for stock returns. The purpose of this paper is to validate the predictive accuracy of various stochastic processes on data different from those used in estimating the models. The main conclusion is that multi-factor models estimated with factor analytic techniques provide more accurate forecasts than the usual market model with either an equal- or value-weighted index, and Fama–French three-factor model. A model incorporating a set of pre-specified macro variables that some prior studies have used has no predictive value.