PurposeThe purpose of this paper is to investigate the performance of the arbitrage pricing theory (APT) in the Istanbul Stock Exchange (ISE) on a monthly basis, for the period January 2001 to September 2005.Design/methodology/approachThis study examines six pre‐specified macroeconomic variables which are: the term structure of interest rate, unanticipated inflation, risk premium, exchange rate and money supply. All these are the same as those used by Chen, Roll and Roll for the US market. In this study, the authors develop one more variable namely unemployment rate, which has a relation with the stock return.FindingsUsing the OLS technique, the authors observed that there are some differences among the market portfolios. Before starting to comment on the result of OLS, the serial correlation problem was discussed by using Durbin‐Watson statistics. In this study, the critical values were ranged from between 1.33 and 1.81 (T=57, K=6). Our test results confirmed that in ten out of the 13 there were no serial correlations. Our results show that there are big differences among market portfolios against macroeconomic variables through the variation of R2. In the remaining portfolios; there was no evidence to suggest.Research limitations/implicationsIn this paper, the authors face a problem that was no corporate bond in Turkey's market.Originality/valueThis analysis appears to be the first empirical test of APT using the CAPM formula for finding the risk premium point for ISE.
The main purpose of this paper is to empirically investigate the determinants of bank fragility in the North Cyprus Economy from 1984 to 2008, using a multivariate logit model. A panel data set containing bank level data for 24 commercial banks together with variables related to the macroeconomic environment. The empirical methodology employed in the article allows for the determination of the factors that influence the probability of bank failure. The model links the probability of banking problems to a set of bank-specific factors and macro-environment that may have exacerbated the internal troubles of the financial institutions. The empirical findings suggested that, capital inadequacy, lower income, lower bank size, high inflation rate, lower growth rate, adverse terms of trade shocks and market pressure in Turkey are important determinants of banking sector distress in North Cyprus.Key words: North Cyprus, determinants of bank failure, logit model, market pressure index.
Purpose -The purpose of this paper is to investigate the determinants of the timing of bank failure in North Cyprus over the period of 1984-2002 using a discrete-time logistic survival analysis. Design/methodology/approach -The empirical methodology employed in the paper allows for the determination of the factors that influence the time to bank failure. The model links the time of bank failure to a set of bank-specific factors and macro-environment that may have exacerbated the internal troubles of the financial institutions. Findings -An empirical examination of the results on survival analysis reveal that the three variables, namely: low asset quality (total loan as a percentage of total assets), low liquidity (total liquid asset as a percentage of total assets), and high credit extended to the private sector (ratio of the private credit to gross domestic product) are the main factors that explain the survival time of banks in North Cyprus. Research limitations/implications -For further research this paper may better distinguish time to bank failure if it extends the time period and if it uses exchange pressure from Turkey that may have a direct effect on bank failure in North Cyprus. Practical implications -Nowadays bank failure is an important problem in the world. Using time technique to investigate bank failure will help to learn the factors that determine time to bank failure, which will further help to take precautions and prevent the cost of bank failure. Originality/value -The analysis would appear to be the first to provide evidence and investigate the time to bank failure in the North Cyprus banking sector.
Purpose -The purpose of this research is to investigate the effect of a speculative attack on the Turkish Lira in the North Cyprus banking sector during the period 1984-2002. Design/methodology/approach -A mutivariate logit model is the empirical methodology employed in this analysis that allows us to identify the determinants of the probability of bank failure. In the model, the existence of contagious currency crises is constructed as an index of exchange market pressure, which is a weighted average of changes in interest rates, international reserves and the nominal exchange rate. Findings -The empirical result reveals that the a speculative attack on the Turkish Lira in 1994 and 2001 put stress on banks operating in North Cyprus and led to banking sector distress. The findings also suggest that bank-specific weaknesses, high interest rates, high credit, low trade and the fixed exchange rate policy significantly increased the bank fragility. Research implications/limitations -For further research this paper may better distinguish contagion if it uses economic and financial ties from Turkey that are practically susceptible to bank failure in North Cyprus. Practical implications -This paper presents a practical application of a currency crisis model in the North Cyprus banking sector. In addition to the risk of currency crises, risk under fixed rate regimes, interest rate risk, trade risks and credit risk are also used to encourage correct risk management behaviour in the North Cyprus banking sector. Originality/value -This analysis would appear to be the first systematic evidence that investigates the effect of a speculative pressure on Turkish Lira in the North Cyprus banking sector.
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