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Measuring the Systematic Risk of IPO’s Using Empirical Bayes Estimates in the Thinly Traded Istanbul Stock Exchange

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  • Muradoglu, Gulnur
  • Zaman, Asad
  • Orhan, Mehmet

Abstract

The systematic risk of IPO’s in the thinly traded Istanbul Stock Exchange (ISE) are estimated using Empirical Bayes Estimators (EBE). The sectors that the firms belong to, provide the priors. Comparisons are made with OLS estimators across different estimation and forecasting periods. Two benchmark criteria are used; sum of squared residuals and sum of absolute residuals. The application requires some complicated manipulation of the theory where some inferiors of the ordinary Bayesian approach are avoided. Results show that using the EBE procedure, betas can be calculated with greater precision than OLS. This enables us to evaluate IPO’s on similar intuition with other stocks, i.e. in a portfolio context rather than in isolation.

Suggested Citation

  • Muradoglu, Gulnur & Zaman, Asad & Orhan, Mehmet, 2003. "Measuring the Systematic Risk of IPO’s Using Empirical Bayes Estimates in the Thinly Traded Istanbul Stock Exchange," MPRA Paper 13879, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13879
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    File URL: https://mpra.ub.uni-muenchen.de/13879/1/MPRA_paper_13879.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Empirical Bayes method; Beta estimation; Forecasting; Capital Asset Pricing Model; Initial public offering;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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