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Interest Rate Risk In Turkish Financial Markets Across Different Time Periods

Author

Listed:
  • Durmus Özdemir
  • Harald Schmidbauer

Abstract

A Measuring the risk associated with interest rates is important since it is beneficial in taking measures before negative effects can take place in an economy. We obtain a risk measure for interest rates by fitting the generalized Pareto distribution (GPD) to positive extreme day-to-day changes of the interest rate, using data from the Istanbul Stock Exchange (ISE) Second Hand Bond Market, namely Government Bond interest rate closing quotations, for the time period 2001 through 2009. Although the use of the GPD in the context of absolute interest rates is well ocumented in literature, our approach is different insofar and contributes to the literature as changes in interest rates constitute the target of our analysis, reflecting the idea that risk arises from abrupt changes in interest rate rather than in interest rate levels themselves. Our study clearly shows that the GPD, when applied to interest rate changes, provides a good tool for interest rate risk assessment, and permit a period-specific risk evaluation. Classification-JEL: G1; C1

Suggested Citation

  • Durmus Özdemir & Harald Schmidbauer, 2014. "Interest Rate Risk In Turkish Financial Markets Across Different Time Periods," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(3), pages 183-204, January.
  • Handle: RePEc:idn:journl:v:16:y:2014:i:3f:p:183-204
    DOI: https://doi.org/10.21098/bemp.v16i3.444
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    References listed on IDEAS

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    More about this item

    Keywords

    Interest rate risk; covered interest parity; Turkey; generalized Pareto distribution;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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