Annals of Financial Economics

This paper, based on the international capital asset pricing model estimated using the Kalman filter (KF) technique, examines the relationship between market integration and the systematic risk of Asia-Pacific Economic Cooperation (APEC) emerging stock markets with respect to the world portfolio. We find strong evidence that local and regional integrations have effects on systematic risk and hence on returns, and certain evidence of the direct effects of market integrations on returns. Our results documented for individual markets show a heterogeneous pattern across the APEC region, implying that a one-rule-fits-all regulation policy would hurt some countries while assisting others.

In this paper, we study how a competitive banking firm can use a variable deposit rate to insure against profit risk from risky assets and how the utility of the bank manager is affected by this kind of risk management policy. Furthermore, we study the advantage of a risk management policy which is based on financial hedging. Finally, we answer the question which of these risk management policies the bank manager prefers.

The potential cointegrating relationship between stock prices and economic activity suggested by financial and economic theory is examined. It is found that the commonly employed tests of Engle and Granger (1987) and Johansen (1988) fail to detect cointegration between stock prices and industrial production for a long span of US data. In recognition of factors which may result in a failure to detect a genuine cointegrating relationship, the analysis is extended to consider higher-powered cointegration tests, tests which allow for structural change in the cointegrating relationship and tests of asymmetric cointegration. However, despite considering a range of tests, no evidence of cointegration is detected. The results therefore do not support the predictions of financial and economic theory.

Volatility–volume regressions provide a convenient framework to study sources of volatility predictability. We apply this approach to the daily realized volatility of common stocks. We find that unexpected volume plays a more significant role in explaining realized volatility than expected volume, and accounts for about one-third of the non-persistent component in the volatility process. Contrary to the findings of Lamoureux and Lastrapes (1990), the ARCH effect is robust even in the presence of volume. However, this component explains only about half of the variations in realized volatility. Thus, large portion of realized volatility is clearly stochastic. This presents a significant challenge to the goal of achieving precise realized volatility forecasts.

Banks are the most important financial institutions in Turkey because other financial institutions are not developed efficiently yet. Turkish banks experienced financial difficulties and a substantial amount of banks failed in the past. This event urged the government to initiate measures to prevent banks from getting into financial difficulties. As a result of these measures, Turkish banking system currently seems to be very attractive for the foreign investors willing to invest in this sector. One of the main concerns of the foreign investors is a possibility of a new banking crisis although it is very remote at this time. The purpose of this study is to develop early warning systems predicting the financial failure at least three years ahead of financial failure date.

A number of multivariate statistical models such as multiple regression, discriminant analysis, logit, probit are used. We found that the most appropriate model is logit. The significant variables obtained from the models explain very well the causes of the bank failures. Our models can be used to assist interested parties to predict the probability of financial failure of Turkish banks.