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Publication Metadata only A theory of collateral for the lender of last resort(Oxford Univ Press, 2021) Choi, Dong Beom; Santos, Joao A. C.; N/A; Yorulmazer, Tanju; Faculty Member; Graduate School of Social Sciences and Humanities; 328768We consider a macroprudential approach to analyze the optimal lending policy for the central bank, focusing on spillover effects that policy exerts on money markets. Lending against high-quality collateral protects central banks against losses, but can adversely affect liquidity creation in markets since high-quality collateral gets locked up with the central bank rather than circulating in markets. Lending against low-quality collateral creates counterparty risk but can improve liquidity in markets. We illustrate the optimal policy incorporating these trade-offs. Contrary to what is generally accepted, lending against high-quality collateral can have negative effects, whereas it may be optimal to lend against low-quality collateral.Publication Metadata only Hedging under gamma constraints by optimal stopping and face-lifting(Blackwell Publishing, 2007) Touzi, Nizar; Department of Mathematics; Soner, Halil Mete; Faculty Member; Department of Mathematics; College of Sciences; N/AA super-replication problem with a gamma constraint, introduced in Soner and Touzi, is studied in the context of the one-dimensional Black and Scholes model. Several representations of the minimal super-hedging cost are obtained using the characterization derived in Cheridito, Soner, and Touzi. It is shown that the upper bound constraint on the gamma implies that the optimal strategy consists in hedging a conveniently face-lifted payoff function. Further an unusual connection between an optimal stopping problem and the lower bound is proved. A formal description of the optimal hedging strategy as a succession of periods of classical Black-Scholes hedging strategy and simple buy-and-hold strategy is also provided.Publication Metadata only Imported machinery for export competitiveness(Oxford University Press (OUP), 2002) Mody, Ashoka; Department of Economics; Yılmaz, Kamil; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 6111This article analyzes the relationship between export competitiveness and investment in machinery, allowing for imperfect substitution between domestically produced and imported machinery. A translog export price function is estimated for developed, exportoriented developing, and import-substituting developing economies in a panel data setting. Between 1967 and 1990 imported machinery helped lower export prices for export-oriented developing economies. Moreover, throughout the period imported machinery was not a substitute for domestic machinery. Import-substituting developing economies were unable to harness imported machinery to reduce costs early in the period, but from about the early 1980s, with the opening of their trade regimes, they were able to benefit from the cost-reducing effect. The results imply that innovative effort based on imported technologies can be a precursor to the development of domestic innovation capabilities.Publication Metadata only Measuring real-financial connectedness in the us economy(Elsevier Science Inc, 2021) Uluceviz, Erhan; Department of Economics; Yılmaz, Kamil; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 6111We analyze the connectedness between the real and the financial sectors of the U.S. economy. Using the weekly ADS index of the Philadelphia Fed (the widely used business conditions indicator) to represent the real side, we find that during times of financial distress and business cycle turning points, the direction of connectedness runs from the real sector to financial markets. The ADS index is derived from a model containing a measure of term structure along with real variables. Therefore, it might not be the best representative of the real activity used in the connectedness analysis. As an alternative, we derive a real activity index (RAI) from a dynamic factor model of the real sector variables only. The behavior of RAI over time is quite similar to that of the ADS index. When we include RAI to represent the real side, connectedness from the real side to financial markets weakens substantially, while the connectedness from financial markets to the real side becomes more pronounced.Publication Metadata only Predicting systematic risk: implications from growth options(Elsevier Science Bv, 2010) Jacquier, Eric; Titman, Sheridan; Department of Business Administration; Yalçın, Atakan; Faculty Member; Department of Business Administration; Graduate School of Business; 179934In accordance with the well-known financial leverage effect decreases in stock prices cause an increase in the levered equity beta for a given unlevered beta However as growth options are more volatile and have higher risk than assets in place a price decrease may decrease the unlevered equity beta via an operating leverage effect This is because price decreases are associated with a proportionately higher loss in growth options than in assets in place Most of the existing literature focuses on the financial leverage effect This paper examines both effects We show with a simple option pricing model the opposing effects at work when the firm is a portfolio of assets in place and growth options Our empirical results show that, contrary to common belief the operating leverage effect largely dominates the financial leverage effect even for initially highly levered firms with presumably few growth options We then link variations in betas to measurable firm characteristics that proxy for the fraction of the firm invested in growth options We show that these proxies jointly predict a large fraction of future cross-sectional differences in betas These results have important implications on the predictability of equity betas hence on empirical asset pricing and on portfolio optimization that controls for systematic risk.Publication Metadata only Redistribution through education and other transfer mechanisms(Elsevier, 2003) Hanushek, Eric A.; Leung, Charles Ka Yui; Department of Economics; Yılmaz, Kuzey; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AEducational subsidies are frequently justified as a method of altering the income distribution. It is thus natural to compare education to other tax-transfer schemes designed to achieve distributional objectives. While equity-efficiency trade-offs are frequently discussed, they are rarely explicitly treated. This paper creates a general equilibrium model of school attendance, labor supply, wage determination, and aggregate production, which is used to compare alternative redistribution devices in terms of both deadweight loss and distributional outcomes. A wage subsidy generally dominates tuition subsidies across a wide range of fundamental parameters for the economy. Both are generally superior to a negative income tax. With externalities in production, however, there is an unambiguous role for governmental subsidy of education, because it both raises GDP and creates a more equal income distribution.Publication Metadata only Regulation fair disclosure and the market's reaction to analyst investment recommendation changes(Elsevier Science Bv, 2007) Cornett, Marcia Millon; Tehranian, Hassan; Department of Business Administration; Yalçın, Atakan; Faculty Member; Department of Business Administration; Graduate School of Business; 179934Previous research has shown that affiliated analysts (those who are working for investment banks that underwrite securities for companies) have an incentive to provide optimistically biased recommendations from selective information they are given by the firm. In an effort to halt such activities, as of October 2000, Regulation Fair Disclosure (RegFD) prohibits selective disclosure of material non-public information by public companies to privileged individuals (such as favored research analysts) and requires broad, non-exclusionary disclosure of such information. We examine firms' stock price reactions to investment recommendation changes from affiliated analysts versus unaffiliated analysts from October 1998 to November 2002, around the passage of RegFD. Similar to previous research, we find that investors reacted more significantly to recommendation downgrades by affiliated analysts than to those by unaffiliated analysts prior to the passage of RegFD. However, we find that the difference in the reactions to recommendation changes is not present after the passage of RegFD. We also find that stock price reactions to analysts' (both affiliated and unaffiliated) recommendation changes decreased significantly after the passage of RegFD. Thus, RegFD appears to have curbed the selective disclosure of information (particularly negative information) by firms to affiliated analysts. Further, the smaller reactions to recommendation changes by all analysts after RegFD may reflect a change in analysts' behavior (irrespective of information that is available) or a response by corporate managers to withhold information rather than risking a violation of fair disclosure rules.Publication Metadata only Trans-Atlantic equity volatility connectedness: U.S. and European financial institutions, 2004-2014(Oxford Univ Press, 2016) Diebold, Francis X.; Department of Economics; Yılmaz, Kamil; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 6111We characterize equity return volatility connectedness in the network of major American and European financial institutions, 2004-2014. Our methods enable precise characterization of the timing and evolution of key aspects of the financial crisis. First, we find that during 2007-2008 the direction of connectedness was clearly from the United States to Europe, but that connectedness became bidirectional starting in late 2008. Second, we find an unprecedented surge in directional connectedness from European to U.S. financial institutions in June 2011, consistent with massive deterioration in the health of EU financial institutions. Third, we identify particular institutions that played disproportionately important roles in generating connectedness during the U.S. and the European crises.