Browsing by Subject "Foreign exchange rates."
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Item Open Access Impact of exchange rate fluctuations and political risk on the risk premiums reflected in the cross-sections of individual eqity returns(Bilkent University, 1996) Yılmaz, ÖzerThe impact of exchange rate fluctuations and political risk on the risk premiums of individual equity returns trading in Istanbul Stock Exchange will be analyzed empirically. Turkey as an emerging market faced considerable monetary and political turbulence in the past decade. Variables from the currency and sovereign debt markets will be the proxies for exchange rate risk and political risks, respectively. Evidence of the risk premiums as a result of the exposure to the equity markets show valuable inferences although statistically significant conclusions are not the majority. These results have many implications for the corporate and portfolio management. This study also provides tools and data that can be utilized by the emerging market researchers.Item Open Access Testing the effects of oral interventions on the covariance of exchange rates in a state-of-the-art computational environment(Bilkent University, 2009) Çaşkurlu, TolgaIn the last decade, both Federal Reserve System (FED) and European Central Bank (ECB) abandoned direct market interventions and relied on communication as their main policy tool to affect exchange rates. This paper investigates the impacts of officials’ statements (oral intervention) on the covariance of the EUR/USD and JPY/USD. Using generalized autoregressive conditional heteroscedasticity (GARCH) model’s diagonal vector error correction (DVEC) representation, we find that strengthening oral interventions in US and Japan decrease while in Eurozone increase the covariance between EUR/USD and JPY/USD. Also reversely, weakening oral interventions in US and Japan increase while in Eurozone decrease the covariance. Since oral interventions are explanatory variables of the conditional covariance structure of G3 currencies (USD, EUR and JPY), ignoring oral interventions may cause errors in foreign exchange (forex) covariance forecasts. During the estimation procedure, we use a different approach than the commonly practiced in the literature. We solve the resulting optimization problem from maximum likelihood estimation (MLE) of DVEC model in two steps: first by genetic algorithm (GA) and then by sequential quadratic programming (SQP) algorithm. Furthermore, to land at a better local optimal, the experiments are conducted in NEOS Servers1 . Comparing our results with those of benchmark S+ GARCH module (a commercial software), we find that our approach yields much higher objective value than the benchmark does. Hence, we conclude that our computational methodology provides substantial improvement to in-sample forex covariance forecasting. Our results have applications in portfolio management as well.Item Open Access A thesis on exchange rates, fundamentals and trade(Bilkent University, 2014) Doğanay, Seda MeyveciThis dissertation is made up of three essays on understanding the exchange rate movements and the link between the exchange rate and the real economy. In the first essay, exchange rate movements are decomposed into two components that are driven by the observable fundamentals and the unobservable factors in the economy with different statistical methods. Then, these methods results are compared in a reduce form equation in a panel setting that enables us to understand the economic sense behind these decomposition techniques. From this analysis, Christiano and Fitzgerald Filter (C-F Filter) (2003) is selected as the method that decomposes real exchange rate into permanent and temporary components which are respectively components that capture the fundamentals and unobservables. In the second essay the Meese and Rogoff puzzle is analyzed through testing the scapegoat theory of exchange rate. Scapegoat theory of exchange rate claims that when exchange rate changes due to an unobserved factor, to rationalize this movement, agents give more weight to a fundamental that reveals a large variation from its mean which creates an exchange rate movement in the expected direction. This part presents an empirical test of the scapegoat theory of exchange rate using Turkish data. It is found that there exists a strong and robust empirical support for the scapegoat theory of exchange rate. Of all the fundamentals, between 2003-2013 market participants have viewed the current account as the scapegoat; the current account variable and its scapegoat incidences have the statistically significant and theoretically expected effect on nominal spot exchange rate return. Finally in the last essay making use of the decomposed exchange rate series the impact of exchange rate on bilateral trade flows is empirically analyzed using the Gravity Model in a panel setting. The estimation is done for using aggregate bilateral trade data. From this analysis we conclude that the impact of currency depreciation on trade flows depends on whether that change in the exchange rate reflects a shift in trend or is just a transitory movement.