Essays in empirical asset pricing: Turkish markets
Erdoğan, Alper (2014) Essays in empirical asset pricing: Turkish markets. [Thesis]
The first part of this dissertation reviews the asset pricing literature on Turkish markets. After a general literature review, it focuses on studies associated with share issuance; next, it examines literature on the relationship between macroeconomic factors and stock returns. The second part of this dissertation investigates the predictive power of share issuance on stock returns on the Borsa Istanbul and tests its significance vis-à-vis the well-known factors of market equity, book-to-market and momentum by employing multivariate Fama-MacBeth regressions. The sign of the slope coefficients on book-to-market and market equity are consistent with prior literature; however, the slope coefficient on momentum is negative. In univariate settings, share issuance is not statistically significant because of the mechanical relation between rights offerings and book value; however, when considered jointly with book-to-market, market equity and momentum, share issuance predicts cross-sectional returns, especially for longer return horizons. The analysis shows that after three-month return regressions, share issuance is more significant than market equity and momentum, and is similar to book-to-market in terms of predictive power. The third part of this dissertation analyzes stock exposure to various financial and macroeconomic risk factors through univariate and multivariate estimates of factor betas. It also investigates the performance of these factor betas in predicting the cross-sectional variation in individual stock returns quoted on the Turkish stock market over the sample period 1992-2011. The study contributes to the literature through its use of a two-step procedure. First, the factor betas are estimated using stock returns and macroeconomic factors; then, the sensitivities of these factor betas are calculated. The three most important findings are: (i) there exists a negative and significant relation between the interest rate beta of benchmark bonds and future individual stock returns; (ii) the addition of well-known market, book-to-market, size and momentum factors does not alter the statistical significance of the interest rate beta of benchmark bonds; and (iii) univariate portfolio analysis shows that these results are driven by debt/equity (leverage) ratio. In short, the study concludes that the sensitivity to the interest rate of benchmark bonds or leverage is a risk factor for the Turkish stock market.
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