Overreaction diamonds: precursors and aftershocks for significant price changes

Overreactions and other behavioral effects in stock prices can best be examined by adjusting for the changes in fundamentals. We perform this by subtracting the relative price changes in the net asset value (NAV) from that of market price (MP) daily for 134 406 data points of closed-end funds trading in US markets. We examine the days before and after a significant rise or fall in price deviation and MP return and find evidence of overreaction in the days after the change. Prior to a spike in deviation we find a gradual two- or three-day decline (and analogously in the other direction). Overall, there is a characteristic diamond pattern, revealing a symmetry in deviations before and after the significant change. Much of the statistical significance and the patterns disappear when the subtraction of NAV return is eliminated, suggesting that the frequent changes in fundamentals mask behavioral effects. A second study subdivides the data depending on whether the NAV or market price is responsible for the spike in the relative difference. In a majority of spikes, it is the change in market price rather than NAV that is dominant. Among those spikes for which there is little or no change in NAV, the results are similar to the overall study. Furthermore, the upward spikes are preceded by one or two days of declining market price while NAV rises slightly or is relatively unchanged. This suggests that a cause of the spike may be due to over-positioning of traders in the opposite direction in anticipation.     

Statistical arbitrage in the Black–Scholes framework

In this study, we prove the existence of statistical arbitrage opportunities in the Black–Scholes framework by considering trading strategies that consist of borrowing at the risk-free rate and taking a long position in the stock until it hits a deterministic barrier level. We derive analytical formulas for the expected value, variance and probability of loss for the discounted cumulative trading profits. The statistical arbitrage condition is derived in the Black–Scholes framework, which imposes a constraint on the Sharpe ratio of the stock. Furthermore, we verify our theoretical results via extensive Monte Carlo simulations.     

Destination Choice: An Important - Satisfaction Analysis

In the last decade under the effects of globalization, all destinations have had experienced significant changes under different national and/or international pressures. This is especially the case for developing countries like Turkey. With cultural, economic and social aspects in the tourism sphere, countries are competing with each other by emphasizing their differences. This research examines the perceptions of tourists in the Antalya Region of Turkey in terms of importance and satisfaction. The sample consisted of 645 tourists who came to Antalya in 2001. This research presents valuable information to the tourism sector about tourist preferences through its use of importance-satisfaction analysis.     

A class of multipartner matching markets with a strong lattice structure

Summary. For a two-sided multipartner matching model where agents are given by path-independent choice functions and no quota restrictions, Blair [7] had shown that stable matchings always exist and form a lattice. However, the lattice operations were not simple and not distributive. Recently Alkan [3] showed that if one introduces quotas together with a monotonicity condition then the set of stable matchings is a distributive lattice under a natural definition of supremum and infimum for matchings. In this study we show that the quota restriction can be removed and replaced by a more general condition named cardinal monotonicity and all the structural properties derived in [3] still hold. In particular, although there are no exogenous quotas in the model there is endogenously a sort of quota; more precisely, each agent has the same number of partners in every stable matching. Stable matchings also have the polarity property (supremum with respect to one side is identical to infimum with respect to the other side) and a property we call {\it complementarity}. Received: May 5, 2000; revised version: January 25, 2001     

Global Liquidity,Current Account Deficit,and Exchange Rate Balance Sheet Effects in Turkey

This study investigates the current account deficit (CAD) of Turkey from the perspective of its capital account. We discuss how global liquidity conditions and monetary policies in Turkey have contributed to higher deficits through real exchange rate appreciations. We analyze the impact and consequences of exchange rate (ER) changes on the investments of non-financial firms. In the case of real ER depreciations, we find that the magnitude of the contractionary effect through balance sheets of firms with dollarized liabilities is significantly higher than the expansionary effect through trade competitiveness. We also analyze the “soft-landing” policies aimed at reducing the CAD in Turkey and estimate the rate of economic growth that must be foregone for a percentage reduction in CAD.     

Research notes and communications. Some connections between corporate-level planning and diversity

Two accepted concepts of management literature are (a) increasing diversification as companies progress through ‘stages of growth’, and (b) the responsibility of the corporate level for diversification-type planning. The thrust of this research note is to provide an empirical test of these independently developed concepts; that is, a test that focuses on the relationship between corporate-level planning and diversity.     

Co-integrating currencies and yield differentials

This study investigates the relationship between currencies and interest rates of different maturity horizons. The real exchange rate is found to depend both on short-term real domestic and foreign interest rate difference and on long-term real domestic and foreign interest rate difference. Co-integrating regressions of contemporaneous currency rates generate negative and significant coefficients for long-term rate differentials, consistent with uncovered interest parity. Therefore, the expectations hypothesis holds for long horizons. On the other hand, positive coefficients for real short-term interest rate differentials reveal the forward premium puzzle: the failure of uncovered interest parity for short-horizons. Results are partly driven by the very different risk characteristics of short-term bonds and foreign bonds.     

Credit and self-employment

The US personal bankruptcy system allows debtors to discharge uncollateralized debts if they give up assets in excess of a threshold known as an “exemption”. However, since exemptions erode repayment incentives, they may increase borrowing costs. Our paper evaluates the tradeoff between credit costs and the insurance against failure created by bankruptcy exemptions. We find that exemptions change self-employment rates and the timing, size, and financing of projects. We also find that the positive relationship between wealth and self-employment rates may not arise from credit constraints: such a relationship is present even when credit is plentiful at low interest rates.