Department of Management

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Open Access
Aggregate volatility expectations and threshold CAPM
(Elsevier Inc., 2015) Arisoy, Y. E.; Altay-Salih, A.; Akdeniz, L.
We propose a volatility-based capital asset pricing model (V-CAPM) in which asset betas change discretely with respect to changes in investors' expectations regarding near-term aggregate volatility. Using a novel measure to proxy uncertainty about expected changes in aggregate volatility, i.e. monthly range of the VIX index (RVIX), we find that portfolio betas change significantly when uncertainty about aggregate volatility expectations is beyond a certain threshold level. Due to changes in their market betas, small and value stocks are perceived as riskier than their big and growth counterparts in bad times, when uncertainty about aggregate volatility expectations is high. The proposed model yields a positive and significant market risk premium during periods when investors do not expect significant uncertainty in near-term aggregate volatility. Our findings support a volatility-based time-varying risk explanation.
Open Access
Are stock prices too volatile to be justified by the dividend discount model?
(Elsevier, 2007) Akdeniz, L.; Salih, A. A.; Ok, S. T.
This study investigates excess stock price volatility using the variance bound framework of LeRoy and Porter [The present-value relation: tests based on implied variance bounds, Econometrica 49 (1981) 555-574] and of Shiller [Do stock prices move too much to be justified by subsequent changes in dividends? Am. Econ. Rev. 71 (1981) 421-436.]. The conditional variance bound relationship is examined using cross-sectional data simulated from the general equilibrium asset pricing model of Brock [Asset prices in a production economy, in: J.J. McCall (Ed.), The Economics of Information and Uncertainty, University of Chicago Press, Chicago (for N.B.E.R.), 1982]. Results show that the conditional variance bounds hold, hence, our hypothesis of the validity of the dividend discount model cannot be rejected. Moreover, in our setting, markets are efficient and stock prices are neither affected by herd psychology nor by the outcome of noise trading by naive investors; thus, we are able to control for market efficiency. Consequently, we show that one cannot infer any conclusions about market efficiency from the unconditional variance bounds tests.
Open Access
A cross-section of expected stock returns on the Istanbul stock exchange
(Routledge, 2000) Akdeniz, L.; Altay-Salih, A.; Aydogan, K.
Open Access
The degree of financial liberalization and aggregated stock-return volatility in emerging markets
(Elsevier, 2010) Umutlu, M.; Akdeniz, L.; Altay-Salih, A.
In this study, we address whether the degree of financial liberalization affects the aggregated total volatility of stock returns by considering the time-varying nature of financial liberalization. We also explore channels through which the degree of financial liberalization impacts aggregated total volatility. We document a negative relation to the degree of financial liberalization after controlling for size, liquidity, country, and crisis effects, especially for small and medium-sized markets. Moreover, the degree of financial liberalization transmits its negative impact on aggregated total volatility through aggregated idiosyncratic and local volatilities. Overall, our results provide evidence in favor of the view that the broadening of the investor base due to the increasing degree of financial liberalization causes a reduction in the total volatility of stock returns.
Open Access
Do CAPM results hold in a dynamic economy? a numerical analysis
(Elsevier, 1997) Akdeniz, L.; Dechert, W. D.
In this research we use the projection method (reported by Judd) to find numerical solutions to the Euler equations of a stochastic dynamic growth model. The model that we solve is Brock's asset pricing model for a variety of parameterizations of the production functions. Using simulated data from the model, conjectures (which are not analytically tractable) can be verified. We show that the market portfolio is mean-variance efficient in this dynamic context. We also show a result that is not available from the static CAPM theory: the efficient frontier shifts up and down over the business cycle.
Open Access
Do time-varying betas help in asset pricing? evidence from borsa Istanbul
(Routledge, 2015) Yayvak, B.; Akdeniz, L.; Altay-Salih, A.
We investigate the time variation in the market risk of industry portfolios of Borsa Istanbul with respect to changes in economic conditions by employing the threshold CAPM. The threshold CAPM defines beta as a function of an underlying economic variable, the threshold variable, to allow beta to change between two different regimes when the threshold variable hits a certain threshold level. We use interest rate, currency basket, real effective currency index, and market volatility as candidates for the threshold variable. We find there is a significant time variation in betas with respect to changes in the currency basket level.
Open Access
Does ADR listing affect the dynamics of volatility in emerging markets?
(Univerzita Karlova v Praze, 2010) Umutlu, M.; Altay-Salih, A.; Akdeniz, L.
This paper analyzes the time-series variation in the return volatility of non-US stocks from emerging markets that are cross-listed on US exchanges. Unlike previous studies in the cross-listing literature, return volatility is modeled using conditional heteroscedasticity models. We find that firms' exposure to risks such as local and global market betas remain unchanged after cross-listing. Moreover, we do not identify notable changes in the dynamics of the volatility of cross-listed stocks after cross-listing except for leverage effects. We further show that the mean level of conditional variance is not affected after cross-listing. Thus, our results provide counter-evidence to the belief that foreign investor participation drives volatility upward.
Open Access
The equity premium in Brock's asset pricing model
(Elsevier, 2007) Akdeniz, L.; Dechert, W. D.
In this paper we combine dynamic programming methods with projection methods for solving stochastic growth models. As an application of these methods, we solve Brock’s asset pricing model with a variety of parameterizations. We focused on finding parameterizations that result in an equity premium that is high relative to the variation in consumption. We show (both analytically and numerically) that the equity premium can be higher in a production based asset pricing model than it is in the consumption based asset pricing model, even when the real output level is the same in both models.
Open Access
The equity premium in consumption and production models?
(Cambridge University Press, 2012-02-27) Akdeniz, L.; Dechert, W. D.
In this paper we use a simple model with a single Cobb–Douglas firm and a consumer with a CRRA utility function to show the difference between the equity premia in the production-based Brock model and the consumption-based Lucas model. With this simple example we show that the equity premium in the production-based model exceeds that of the consumption-based model with probability 1.
Open Access
The Evolving Role of Supply Chain Managers in global Channels of Distribution and Logistics Systems
(Emerald Group, 2014-09) Kiessling, T.; Harvey, M.; Akdeniz, L.
Purpose – Supply chains have become a strategic strength to many firms due to the nature of the globalization of business. The past roles of supply chain managers have changed dramatically and now also include various new duties that will enhance firm competitiveness due to their boundary spanning nature and the new focus of learning organizations. The paper aims to discuss these issues. Design/methodology/approach – This was a theoretically developed paper exploring trust, learning organizations, and supply chains. Findings – Researchers are now focussing on the relationship among the supply chain network through the paradigm of relational marketing as the governance structures of contractual arrangements globally cannot be anticipated. Originality/value – The research through the lens of relational marketing explores how supply chain managers’ core duties are now compounded by global/cultural nuances in respect to implicit knowledge acquisition and relationship development through strong-form trust.
Open Access
Foreign equity trading and average stock-return volatility
(Wiley-Blackwell Publishing, 2013) Umutlu, M.; Akdeniz, L.; Altay-Salih, A.
We examine whether there is a relationship between foreign equity trading and average total volatility, measured as the value-weighted average of stock-return variance in the Istanbul Stock Exchange. We employ foreign equity purchase and sale data to track changes in foreign equity trading, which not only enable us to capture effective foreign investor participation but also to observe the potential asymmetric effects of incoming and outgoing funds on the average total volatility. Consistent with the implications of the asymmetric information hypothesis, we find that net equity flow is positively associated with average total volatility. Furthermore, we show that net equity flow affects the average total volatility through the local and idiosyncratic volatilities, suggesting that foreign investors engage in the production of firm specific and market wide information.
Open Access
Interdependence of the banking sector and the real sector: evidence from OECD countries
(2008) Şendeniz-Yüncü, İ.; Akdeniz, L.; Aydoğan, K.
This paper investigates the validity of the credit view hypothesis in eleven OECD countries over the period 1987:QI – 2003:QIII. The existence of a long-run relationship between the banking sector and the real sector is supported by cointegration test results. For some of the countries in the sample, Granger causality tests show the leading role of the banking sector in the real sector, thus supporting the credit view hypothesis, whereas for other countries, the same tests indicate no interdependence.
Open Access
Is volatility risk priced in the securities market? evidence from S&P 500 index options
(John Wiley & Sons, 2007) Arisoy, Y. E.; Salih, A.; Akdeniz, L.
The authors examine whether volatility risk is a priced risk factor in securities returns. Zero-beta at-the-money straddle returns of the S&P 500 index are used to measure volatility risk. It is demonstrated that volatility risk captures time variation in the stochastic discount factor. The results suggest that straddle returns are important conditioning variables in asset pricing, and investors use straddle returns when forming their expectations about securities returns. One interesting finding is that different classes of firms react differently to volatility risk. For example, small firms and value firms have negative and significant volatility coefficients, whereas big firms and growth firms have positive and significant volatility coefficients during high-volatility periods, indicating that investors see these latter firms as hedges against volatile states of the economy. Overall, these findings have important implications for portfolio formation, risk management, and hedging strategies.
Open Access
On the performance of West's bubble test: a simulation approach
(Elsevier, 2010-12-01) Yuksel, A.; Akdeniz, L.; Altay-Salih, A.
In this research we examine the ability of West’s bubble test [1] in detecting speculative bubbles using Brock’s (1982) [2] intertemporal general equilibrium model of asset pricing as the basis for a simulation study. In this setting, (1) the economy, by construction is effi- cient and produces the maximally possible amount of welfare for society, and (2) asset prices reflect the utility-maximizing behavior of consumers and the profit-maximizing behavior of firms. We find that the West’s bubble test flag as ‘‘bubbles” in the simulated data yet the data is produced from an economy in which markets are efficient in welfare production.
Open Access
Retail vs institutional investor attention in the cryptocurrency market
(Elsevier BV, 2022-10-10) Özdamar, Melisa; Şensoy, Ahmet; Akdeniz, L.
We investigate the impact of retail vs institutional investor attention on returns, idiosyncratic risk and liquidity of the cryptocurrency market. Accordingly, retail (institutional) investor attention has a negative (positive) effect on cryptocurrency returns. Moreover, retail (institutional) investor attention aggravates (constrains) the idiosyncratic risk whereas both type of attention boost liquidity of the cryptocurrency market. However, only retail investor attention exacerbates idiosyncratic volatility in unstable market conditions whereas it has a constructive effect on liquidity in low global economic policy uncertainty. Furthermore, institutional investor attention has a constructive impact on both idiosyncratic risk and liquidity within relatively stable and rising external market environment.
Open Access
Risk and return in a dynamic general equilibrium model
(Elsevier, 2000) Akdeniz, L.
In this paper we examine the relationship between risk and return on productive assets using the intertemporal general equilibrium model of Brock (1982, Asset Prices in a Production Economy, the University of Chicago Press, Chicago, pp. 1-42) as a basis for a simulation study. Current computational techniques are used to solve the growth model of Brock (1979, An Integration of Stochastic Growth and the Theory of Finance - Part I: The Growth Model, Academic Press, New York, pp. 165-192) in order to analyze the underlying financial model. Contrary to recent empirical findings, we find that there is a theoretical basis for the linear relationship between risk and return. This apparent contradiction is due in part to the fact that the dynamic relationship between risk and return depends on the level of output.
Open Access
Role of strong versus weak networks in small business growth in an emerging economy
(MDPI, 2014-02) Kozan, M. K.; Akdeniz, L.
The study tests whether strong rather than weak ties account for small business growth in Turkey. Data were collected by means of a questionnaire filled out by the owners of small firms operating in four cities. Growth is comprised of two main areas, production expansion and knowledge acquisition. Results show that strong ties are positively related to both types of growth. In contrast, loose ties have no effect on small business growth in either area. This finding is attributed to the influence of the collectivistic nature of the mainstream Turkish culture, where owners of small businesses are likely to rely on in-groups rather than out-groups for advice and for financial support. Implications of relative absence of weak ties for small business growth and innovation in emerging economies are discussed. The findings suggest that culture should be included as a contingency variable in future studies of network strength and growth relationship. The paper also discusses the possible moderating role of affective and cognition-based trust in the relation of strong and weak ties to small business growth.
Open Access
Time-varying betas help in asset pricing: the threshold CAPM
(Walter de Gruyter GmbH, 2003) Akdeniz, L.; Altay-Salih, A.; Caner, M.
Although there is a consensus about time variation in market betas, it is not clear how this variation should be captured. Several researchers continue to analyze different versions of the conditional CAPM. However, Ghysels (1998) shows that these conditional CAPM models fail to capture the dynamics of beta risk. In this study, we introduce a new model, threshold CAPM, which outper-forms both the conditional and unconditional CAPMs by generating smaller pricing errors. We also show that the beta risk changes through time with the changes in the economic environment and the dynamics of time variation of beta differ across industries. These findings have important implications for asset allocation, portfolio selection, and hedging decisions.

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