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

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

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.

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File URL: http://mpra.ub.uni-muenchen.de/13879/1/MPRA_paper_13879.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13879.

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Date of creation: 2003
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Publication status: Published in International Journal of Business 8.3(2003): pp. 315-334
Handle: RePEc:pra:mprapa:13879
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  1. Robert F. Stambaugh, . "Analyzing Investments Whose Histories Differ in Length," Rodney L. White Center for Financial Research Working Papers 05-96, Wharton School Rodney L. White Center for Financial Research.
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  8. Andrew F. Siegel, 1995. "Measuring Systematic Risk Using Implicit Beta," Management Science, INFORMS, vol. 41(1), pages 124-128, January.
  9. G. Andrew Karolyi, 1992. "Predicting Risk: Some New Generalizations," Management Science, INFORMS, vol. 38(1), pages 57-74, January.
  10. Bera, Anil K & Kannan, Srinivasan, 1986. "An Adjustment Procedure for Predicting Systematic Risk," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(4), pages 317-32, October.
  11. Stambaugh, Robert F., 1982. "On the exclusion of assets from tests of the two-parameter model : A sensitivity analysis," Journal of Financial Economics, Elsevier, vol. 10(3), pages 237-268, November.
  12. Tinic, Seha M & West, Richard R, 1974. "Marketability of Common Stocks in Canada and the U.S.A.: A Comparison of Agent versus Dealer Dominated Markets," Journal of Finance, American Finance Association, vol. 29(3), pages 729-46, June.
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