Essays in asset pricing

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Bilkent University
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This thesis is composed of four essays exploring the pricing behavior of different financial markets. In the first essay, we investigate the explanatory power of CAPM beta on cross-section of expected stock returns by allowing beta to vary according to the fluctuations in the business cycle. This study contributes to the empirical literature on time-varying beta by documenting that there exists a significant relationship between risk and return when ever we control for the output level. In the second essay, we analyze whether and how investors price the introduction of a regulation that provides a deduction for equity financing of Turkish firms listed on Borsa Istanbul. We find that investors react positively to the introduction of Allowance for Corporate Equity (ACE) regulation and the companies which the market ex-ante prices to benefit the most from the tax shield do ex-post raise more equity relative to companies which the market expects to benefit the least. Alongside of the stock markets, the cryptocurrency markets appeal high attention by the recent empirical studies since it presents a unique feature for financial investment. In the third essay, we explore the significance of maximum daily return (MAX) in the cross-sectional pricing of expected future returns in the cryptocurrency market. Our findings provide evidence for a positive and statistically significant relationship between extreme positive returns and subsequent cryptocurrency returns. Results are robust to controls for size, price, momentum, short-term reversal, liquidity, volatility, skewness, and investor attention. The final chapter focuses on how retail investor attention and institutional investor attention affect returns, idiosyncratic risk and volatility in the cryptocurrency market. We report that there exists a contrary impact of retail and institutional investor attention on cryptocurrency returns and idiosyncratic volatility, however, we show that both have an boosting effect on liquidity of the cryptocurrency market.

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Cross-section of stock returns, Allowance for corporate equity, Cryptocurrency market, MAX effect, Idiosyncratic volatility, Liquidity
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