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Publication Metadata only A bootstrap method for identifying and evaluating a structural vector autoregression(Wiley-Blackwell, 2008) Hoover, Kevin D.; Perez, Stephen J.; Department of Economics; Demiralp, Selva; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 42533Graph-theoretic methods of causal search based on the ideas of Pearl (2000), Spirtes et al. (2000), and others have been applied by a number of researchers to economic data, particularly by Swanson and Granger (1997) to the problem of finding a data-based contemporaneous causal order for the structural vector autoregression, rather than, as is typically done, assuming a weakly justified Choleski order. Demiralp and Hoover (2003) provided Monte Carlo evidence that such methods were effective, provided that signal strengths were sufficiently high. Unfortunately, in applications to actual data, such Monte Carlo simulations are of limited value, as the causal structure of the true data-generating process is necessarily unknown. In this paper, we present a bootstrap procedure that can be applied to actual data (i.e. without knowledge of the true causal structure). We show with an applied example and a simulation study that the procedure is an effective tool for assessing our confidence in causal orders identified by graph-theoretic search algorithms.Publication Metadata only A dynamic asset pricing model with time-varying factor and idiosyncratic risk(Oxford University Press (OUP), 2009) Department of Economics; Glabadanidis, Paskalis; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AThis paper uses a multivariate GaRCH model to account for time variation in factor loadings and idiosyncratic risk in improving the performance of the CaPM and the three-factor Fama-French model. I show how to incorporate time variation in betas and the second moments of the residuals in a very general way. Both the static and conditional CaPM substantially outperform the three-factor model in pricing industry portfolios. Using a dynamic CaPM model results in a 30% reduction in the average absolute pricing error of size/book-to-market portfolios. ad hoc analysis shows that the market beta of a value-minus-growth portfolio decreases whenever the default premium increases as well as during economic recessions.Publication Metadata only A model-independent measure of aggregate idiosyncratic risk(Elsevier, 2008) Cakici, Nusret; Levy, Haim; Department of Economics; Bali, Turan; Other; Department of Economics; College of Administrative Sciences and Economics; N/AThis paper introduces a model-independent measure of aggregate idiosyncratic risk, which does not require estimation of market betas or correlations and is based on the concept of gain from portfolio diversification. The statistical results and graphical analyses provide strong evidence that there are significant level and trend differences between the average idiosyncratic volatility measures of Campbell et al. [Campbell, J.Y., Lettau, M., Malkiel, B.G., and Xu, Y., 2001, Have individual stocks become more volatile? An empirical exploration of idiosyncratic risk, journal of Finance 56, 1-43.] and the new methodology. Although both approaches indicate a noticeable increase in the firm-level idiosyncratic risk, the volatility measure of CLMX is greater and has a stronger upward trend than the new idiosyncratic volatility measure. For both measures of idiosyncratic risk, the upward trend is found to be stronger for smaller. lower-priced, and younger firms. The analytical and empirical results show that the significant upward trend in the differences of the two idiosyncratic volatility measures is related to the increase in the cross-sectional dispersion of the volatility of individual stocks.Publication Metadata only A note on the valuation of compound options(John Wiley & Sons Inc, 2002) N/A; Department of Economics; Lajeri-Chaherli, Fatma; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AThe value of a compound option, an option on an option, has been derived by Geske (1976) using Fourier integrals. This article presents two alternative proofs to derive the value of a compound option. One proof is based on the martingale approach, which provides a simple and powerful tool for valuing contingent claims, The second proof uses the expectation of a truncated bivariate normal variable. These proofs allow for an intuitive interpretation of the three elements constituting the value of a compound option.Publication Open Access A Twitter-based economic policy uncertainty index: expert opinion and financial market dynamics in an emerging market economy(Frontiers, 2022) Altuğ, Sumru; Department of Economics; Yeşiltaş, Sevcan; Şen, Anıl; Arslan, Beyza; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; Graduate School of Social Sciences and Humanities; 258768; N/A; N/AIn this paper, we construct a Twitter-based high-frequency Economic Policy Uncertainty (TEPU) index built on a select set of Twitter user accounts whose tweets are considered to reflect expert opinion on the topic. We study the relationship between the TEPU index and a set of key financial indicators for tracking financial developments in Turkey over the sample period 2013–2021. Based on the results from a vector autoregressive analysis, we find evidence that changes in expert opinion described by fluctuations in the TEPU index interact with fluctuations in financial indicators such as the exchange rate and the stock market index to capture information about high frequency events during our sample period. Second, fluctuations in the TEPU index emerge as a key indicator that helps to predict the country risk premium measured by the CDS spread. We also find evidence that the conditional volatility of the different series reflects salient events that occurred over our sample period.Publication Open Access Choice, consideration sets, and attribute filters(American Economic Association (AEA), 2018) Department of Economics; Kimya, Mert; Faculty Member; Department of Economics; College of Administrative Sciences and EconomicsIt is well known that decision makers do not always consider all of the available alternatives when making a choice. When the alternatives have attributes, these attributes provide a natural way to form the consideration set. I assume a procedure in which the decision maker uses the relative ranking of the alternatives on each attribute to reduce the size of the choice set. I provide a characterization of the procedure and illustrate how to identify the underlying preference and consideration set. The model explains certain choice anomalies such as the attraction and the compromise effects.Publication Metadata only Delay and dynamics in labor market adjustment: simulation results(Elsevier, 2008) Chaudhuri, Shubham; McLaren, John; Department of Economics; Artuç, Erhan; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AWe simulate numerically a trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. Adjustment to a trade shock can be slow with plausible parameter values. In our base case, the economy moves 95% of the distance to the new steady state in approximately eight years. Gross flows have a large effect on this rate of adjustment and on the normative effects of trade. Announcing and delaying the liberalization can build – or destroy – a constituency for free trade. We study the conditions under which these contrasting outcomes occur.Publication Metadata only Demand for decision autonomy and the desire to avoid responsibility in risky environments: experimental evidence(Elsevier, 2020) Gürdal, Mehmet Y.; Department of Economics; N/A; Ertaç, Seda; Gümren, Mert; Faculty Member; Researcher; Department of Economics; College of Administrative Sciences and Economics; Graduate School of Sciences and Engineering; 107102; N/AThis paper experimentally studies individuals' willingness to pay for the authority to make risky decisions for themselves, and the willingness to take responsibility for others, as primary determinants of leadership willingness. We consider a setup involving a pair of individuals, where one individual is designated to make both parties' decisions by default. Depending on treatment, either party can express a willingness to pay to change this situation. If one's willingness to pay to make her own decision herself is positive (negative), we interpret it as a demand for autonomy (a desire to delegate). on the flip side, if one's willingness to pay to avoid making a decision on behalf of another person is positive (negative), we interpret it as a desire to avoid responsibility (a demand for authority). We find that on average, individuals are willing to pay positive amounts of money to make their decisions themselves, and incur positive but smaller opportunity costs for the right to make decisions for others. Certain individual and contextual characteristics emerge as important predictors. Notably, (1) men are more likely to demand both autonomy and authority at the same time, (2) individuals with other regarding preferences are more likely to pay to avoid taking responsibility for others' decisions when the probability of loss is high. Exploring differences between individuals' own decisions and the decisions they make on behalf of others, we find that subjects with other-regarding preferences tend to "cautious-shift" when making decisions on behalf of others. Also, we find that individuals who would like to avoid responsibility also tend to "shift" their decisions when put in a decision-making role. The results have implications for the allocation of decision-making authority in pairs and leadership.Publication Metadata only Development level of hosting areas and the impact of refugees on natives? labor market outcomes in Turkey*(Elsevier, 2022) Araci, Dogu Tan; Kirdar, Murat Gueray; Department of Economics; Demirci, Murat; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 272082We examine how the impact of refugees on natives' labor market outcomes varies by the development level of hosting areas, which has important implications for the optimal allocation of refugees across regions and countries. For this purpose, in the context of the largest refugee group in the world in a single country, Syrian refugees in Turkey, we exploit the significant variation in the development level across regions of Turkey, several of which host a substantial number of refugees. We find that the impact of refugees on natives' labor market outcomes becomes significantly less adverse as the regional development level rises. For instance, the adverse effects of the refugee shock on women's employment and labor force participation observed at the mean level of development vanish at high levels of development. Moreover, while the refugee impact on men's employment is negative for the least developed regions, it is positive for highly developed regions. Our findings imply that developed regions and countries are better positioned to protect their local population from the short-term adverse effects of refugees in the labor market.Publication Metadata only Does self-relevance affect information processing? experimental evidence on the response to performance and non-performance feedback(Elsevier Science Bv, 2011) Department of Economics; Ertaç, Seda; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 107102In many settings, individuals are confronted with decision problems that involve information relevant to their self-image. This paper uses an experiment to explore whether the self-relevance of information influences information processing. The experiment implements two information processing tasks that are identical from a theoretical perspective, but differ in the type of information provided: performance feedback versus information within the context of a purely statistical updating problem. The results suggest that information processing differs significantly across self-relevant and self-irrelevant contexts. In the self-relevant context, except in cases where initial self-confidence is high, subjects overweigh unfavorable performance feedback, leading to overly pessimistic beliefs. This is in contrast to the corresponding self-irrelevant setup, where departures from Bayes' rule do not follow a consistent pattern in terms of direction, and are smaller in magnitude. In addition, I find that women may interpret positive feedback more conservatively than men, leading to more pessimistic posteriors. (C) 2011 Elsevier B.V. All rights reserved.