Global Approaches in Financial Economics, Banking, and Finance

The term contagion has become one of the central topics in the financial literature after devastating effects of Asian Crisis. In general terms, contagion is the increase in the relationships between the markets after a shock that occur in a country or in a group of countries. The consecutive crises that the world is facing in recent years caused an increase in the number of studies that try to find the answer if the crises change the volatility spillovers between the countries and cause contagion effects or not. When the contagion is considered as the initiation of volatility spillover from the financial markets of crisis-originating country to the financial markets of other countries, capital markets of emerging markets are expected to become very fragile due to the foreign capital flows. For this reason, the effects of crises are felt more profoundly in these markets, and these markets are exposed to contagion effects more than developed countries. The determination of contagion effects is crucial especially for international investors that aim to decrease portfolio risk by international diversification. Also it will provide valuable information to policy makers that can be used in decision processes. There are various econometric methodologies that detect the contagion effects and one of them is frequency domain causality approach. In this context, in the study, contagion effects of Greek debt crisis on 34 European stock markets are analyzed by traditional and frequency domain causality approach. According to the results, there are contagion effects from Greek stock market to Czech Republic, Spain, Estonia, Hungary, Ireland, Iceland, Lithuania, Luxembourg, and Portugal stock markets.

This chapter was successfully proposed to clarify the complicated issue which is the dynamic prediction in the extreme events in economic cycles and computationally estimated its impacts on economic systems in ASEAN-3 countries such as Thailand, Malaysia, and Singapore by employing econometric tools, including the Markov-Switching Bayesian Vector Autoregressive model (MSBVAR), Bayesian Non-Stationary Extreme Value Analysis (NEVA), and Bayesian Dynamic Stochastic General Equilibrium approach (BDSGE). Technically, the yearly time-series variables such as Thailand’s gross domestic products, Malaysia’s gross domestic products, and Singapore’s gross domestic products were observed during 1961–2016. Empirically, the results showed the economic trends in the countries containing fluctuated movements relied on the real business cycle concept (RBC model). Additionally, these trends had unusual points called “extreme events” which should be mentioned as an economic alarming signal. Furthermore, the speedy economic adjustments estimated by BDSGE indicated that the extreme fluctuated rates of GDP in ASEAN-3 countries can be the harmful factor to face capital bubble crises, chronic unemployment, and even overpricing indexes. Accordingly, practical policies and private collaboration regarding economic alarming announcements in advance should be intensively considered.

By the beginning of the Nineteenth century, foreign borrowing was put on the agenda since it was understood that fiscal structure of the state could not be sustained by internal dynamics; yet, foreign borrowing did not materialize in that period. The state, which could not afford increasing war expenditures during Crimean war in 1853, borrowed from abroad for the first time in 1854. After this initial borrowing from England and France, foreign borrowing was started to be seen as a state policy by the state, who signed several debt treaties in succession. The newspapers that started to emerge in the Ottoman state in that period penned articles regarding borrowing policy of the state. In these newspapers, there were no direct criticisms regarding borrowing per se, rather the state was criticized mainly on the grounds that it borrowed money when it was in trouble, not to make investments. This study explains foreign borrowings made by the Ottoman State from 1854 and analyzes the views of the intellectuals of the period regarding them.

Since the pioneering work done by Schumpeter, the linkage between finance, technology, and growth has been widely examined. Schumpeter claims that developed financial markets accelerate technologic progress and hence the level of economic growth increases because of the rising potential of technology. This idea is now understood that the development of financial markets is vital for both technological progress and economic growth. Therefore, this chapter aims to determine the linkages between finance, technology, and economic growth using unbalanced panel simultaneous equation system in the EU-member countries in the period from 1995 to 2013. The general results of the simultaneous equation system point out that growth and finance are in congruity indirectly, suggesting that economic growth process improves financial development level. Besides, the results reveal that in the first stage the financial development process of accelerating the technology level measured as R&D expenditures as a percent of gross domestic product and in the second stage a rise in technology level improve the economic growth. In general, it is said that the Schumpeterian hypothesis claiming the positive effect of finance on technology and positive effect of technology on growth is valid.

The main purpose of this study is to examine the relationships between energy consumption, CO₂ emission and economic growth for 28 OECD countries and to form clusters based on the findings. The study is carried out under the 1990–2010 period, considering the annual data, the average annual values for each country are calculated and the countries are grouped by taking into account the main energy variables. This study examined OECD countries into three groups to form more specific clustering, rendering to test the hypotheses in current empirical studies, and examining the relationships of the interacted variables for within and inter-cluster countries.

The aim of this study is to investigate the effect of construction sector on Total Factor Productivity (TFP) in European Union economy by using panel data analysis and analyzing cross-sectional data of 24 European Union countries for the period 2003–2014. To this end, building permits, house prices, and construction index are used to examine the effect of housing sector dynamics and construction sector productivity on the total factor productivity in the general economy. The aim of study is to explain variation in the TFP across countries by the intensity of construction sector activities. It is observed that the coefficients of changes in nominal house prices and building permits are positive, and they have significant relationship with TFP as the coefficient of construction index is negative. Positive coefficients of changes in nominal house prices and building permits support our model. Construction index that measures that how costly the construction activity is also expected to have negative parameters that imply that as construction activity becomes more costly the contribution to TFP growth becomes less. That is, house construction and permits and house demand have positive effects on total factor productivity.

The obligation of the government to provide public services raises the need for tax revenues. As the production factors increase mobility due to globalization, tax revenues have become even more critical. In this process, there has been an increase in the studies that analyze economic and behavioral factors that have an influence on tax revenue performance. In this study, the relationship between religion and tax revenues has been examined by panel data method using dummy variables for world religions. In countries with the highest Christian Protestant population have been found that their tax revenues are increasing. However, in countries where the population is predominantly Orthodox and Muslim, the tax revenues are decreasing due to various reasons.

Twin deficit hypothesis, regarding Keynesian and Ricardian perspective, introducing of the linkage between budget deficit and current account deficit is broadly investigated. The literature on triple deficits which advance twin deficit hypothesis by associating savings and fixed investments is limited. The aim of this chapter is to explore whether the twin and triple deficit hypotheses are valid in developing economies. To this end, the twin and triple deficit hypotheses are examined by testing Dumitrescu and Hurlin (Economic Modelling 29(4): 1450–1460, 2012) panel causality approach for 15 developing country economies. The Czech Republic, Hungary, Estonia, Lithuania, Latvia, Ukraine, Brazil, India, Malaysia, Slovak Republic, Romania, Poland, Russian Federation, South Africa, and Turkey were analyzed, and the period is between 2000 and 2015 in the study. According to the panel causality results, there is a unidirectional causality from budget deficit to current account deficit. It is concluded that hypothesis of twin deficits is valid for the country group analyzed. In the field of the triple deficit hypothesis, a strong interrelationship between domestic savings and the current account is reached, while a causal relationship between fixed capital investments and the current account balance cannot be determined. In this context, when considering domestic savings as the decisive variable in the saving-investment gap, it is concluded that the theory of triple deficit is partially valid for the group of developing countries.

The research subject of many studies is the asymptotical behavior of dynamic systems with both continuous and discrete time scales for economical approaches. The qualitative theory of differential or difference equations is the main basis of these studies. When modeling using ordinary differential equations, the delays in the system are always ignored. However, even a small amount of delay in the system can cause significant changes in the system. For this reason, it is more realistic to use delayed differential equations while modeling the majority of the problems encountered. Moreover, some research showed us that some delays in the systems vary with respect to the internal effects of the system. In this case, using of state-dependent delay differential equations is much more suitable.

In this paper, Kaldorian macro dynamic model with Kaleckian investment delay and models of goods market with supply delay are investigated. First, the classical models are introduced, and then the effects of the delays in the system are discussed. Finally, general systems of state-dependent delay differential equations covering these models are analyzed.

Turkish Banking Sector has grown substantially in recent years. Turkish Banking Sector’s total asset size of sector has reached TL 2972 billion, and total credit size has reached TL 1919 billion as of 2017 June. On the other hand, an increment is being seen in the troubled credits with credit growth. Total troubled asset size has reached TL 61 billion as of 2017 June.

Banks try to dispose troubled credits in their balance sheet. In this context, one of the options that banks carry out is to sell of troubled credits to asset management companies. When examining practices in Turkey, it can be seen that private banks have been using this option. However, state banks cannot be able to use the option because of regulation absence. Banking Regulation and Supervision Agency issued a charter to make up the deficiency about state banks’ troubled credit selling to asset management companies on 08.11.2017. Hence, state banks can transfer and benefit from troubled credit selling to asset management companies.

This paper was prepared to make an evaluation about the charter and its probable effects. As a result of study, it was determined that state banks need to be able to sell credit to asset management companies because their rivals who are private banks have such an opportunity. So, in order to be able to compete with private banks, the regulation is really a need for state banks. Also, state banks’ various indicators which are asset quality, profitability, growth, and industry share would be improved by means of the regulation. On the other hand, troubled credits selling of state banks to asset management companies in Turkey may cause reputation risk for state banks because of collection processes and practices of asset management companies.

In general, it can be said that new regulation proposed by Banking Regulation and Supervision Agency would be beneficial to state banks. Taken into consideration that troubled asset size in state banks has reached TL 17 billion as of 2017 March, importance and benefits of new regulation can be understood very well. However, it would be the best that effects of new regulation should be followed up strictly by regulatory authorities specifically Banking and Regulation Supervision Agency. Necessary amendments should be made if negative effects were seen.

This paper is the first academic study handling the subject which is about Banking Regulation and Supervision Agency’s charter for state banks’ troubled credit selling to asset management companies.

The Ottoman Bank had a special place in the Ottoman Empire during the development of monetary and credit institutions. Founded in 1863, the Ottoman Bank functioned as the central bank for many subjects in the Ottoman Empire, and the bank is an interesting example of the role of foreign capital control over finance and the economy. The Ottoman Bank handled treasury operations until the establishment of the Central Bank and continued to protect the state bank statue. In this chapter, the duties and economic effects of the Ottoman Bank, which started in the Ottoman Empire and continued in the Republic of Turkey, will be discussed in the historical process.

This chapter mentions etymology and history of bankruptcy and discusses serious bankruptcy-related problems such as measuring bankruptcy costs and predicting bankruptcies. The magnitude of bankruptcy costs is a critical issue in terms of capital structure theories. It has also crucial importance to predict probability of bankruptcy in the assessment of companies’ creditworthiness. The enormous increase in large corporate failures in the last decades has revealed the importance of bankruptcy prediction and enforced to improve new techniques. The keystone studies of bankruptcy literature, different findings and views regarding problematic issues of bankruptcy are presented in this chapter. The inconclusive results of these studies indicate that bankruptcy will remain an attractive field for all parties of financial world.

In traditional finance theories and in the efficient market hypothesis, human beings are regarded as rational entities. It has been accepted that people exhibit rational behavior in investment decisions. However, various anomalies have been observed as a result of the inability of these theories to explain the change in the markets. These anomalies have led to criticism of traditional finance theories and have been regarded as the beginning of behavioral finance.

Behavioral finance theories and models argue that the definition of stock prices is influenced by psychological, cognitive and emotional factors of investors. The presence of investors, who do not act rationally on the stock market, and the fact that psychological and emotional factors are effective in the decision-making process distract the stock market from being effective.

Determining the investor behaviors that cause the anomalies detected in the stock market and putting out the possible reasons is important in terms of estimating the share price. In this study, information was given on traditional finance theories that accept individuals as rational. Behavioral finance models and theories were examined to investigate irrational behavior. In addition, anomalies resulting from irrational behavior of investors and investor behavior were examined, and also the relationship between investor behaviors and anomalies was examined.

Countries compete with products which have an absolute advantage in foreign trade operations. Also, there are derivative financial instruments derived from these products in many developing financial markets. Thus, these products provide opportunities for investors such as speculation, arbitrage, and particularly hedging with the help of trading in derivative markets. The trading of these products on derivative markets also brings about the impact of global parameters on spot markets, as well as on futures markets. Hence, it is important for both real investors and financial investors to determine and observe the major macroeconomic variables that affect these products.

This chapter aims to determine macroeconomic variables which affect domestic (local) commodity derivatives such as banana (Central America and Ecuador), palm oil (Malaysia), rice (Thailand), and tea (Kenya). Thereby when the market efficiency is weak or almost absent, the ability to lower the fragility against risks faced by the investors and the other related parties by maintaining advance information is analyzed. For this purpose, K* (K Star) algorithm as a data mining method which is one of the knowledge-based analysis techniques is used in the analysis. In this chapter, four derivative products were estimated by the K* algorithm, which predicts whether their direction will decrease or increase during the next 18 months. The results show that the K* algorithm predicts an accuracy of 66.7–72.2% for three of the four domestic commodity derivatives so that this algorithm is successful in identifying similar properties between global macroeconomic variables and domestic commodity derivatives.

Value creation process is based on intellectual capital or intangibles rather than tangible assets in today’s business environment. Therefore, measuring and reporting of intellectual capital for different issues has become a hotly debated issue in the literature. Currently, it is fair to say that existing financial reporting framework has an inadequacy in disclosuring intellectual capital and there is no consensus on a method to measure intellectual capital correctly as well as a generally accepted model has not been emerged in the literature yet. This chapter aims to cover main methods employed in measuring and evaluating the value of intellectual capital by considering its effect on company value and to assert the inadequacy of traditional accounting to report intellectual capital on financial statements. Moreover, applicability of methods is also discussed in terms of their ability to benefit from accounting numbers. The study is concluded by showing the need on developing new and innovative methods to overcome the challenge of measuring and reporting intellectual capital.

From the sixteenth century onwards and along with the increase in the velocity of money, every state diversified its own financial sources. During the related centuries, the Ottoman state created the “cash waqfs”, an outcome of local settlement, out of its trust institution as an alternative financial source. Cash waqf is the sort of foundation in which the money devoted by persons is managed through the profit/usury rates determined by the state so that the necessary charities are performed. The process can be summarized as the transfer of the total remaining amount into charity services (the primary objective) after the removal of foundation expenses from the incomes of the funds that were made use of as credit.

In endowments, treated as the deeds of foundations, the information regarding how the foundation will be operated and where its revenues will be used is recorded with all its details. Endowments are organized by foundations that are administered by trustees. The arranged section is intended for explaining the functioning of cash waqfs through the financial terms of our present day based on the details involved in endowments. Within this framework, the decisions made by foundations in preparing their endowments with close attention to the economic situations of the related period are associated with such concepts like financial management strategy, trustees’ use of instruments like bonds and bills in evaluating the funds and cash management. Besides, the cash waqfs gathered in funds are addressed in relation to fund management, while the sureties and the pledged assets received during the credit phase are discussed within risk management.

This paper investigates abnormal returns of 19 emerging market equity portfolios during the Fed’s tapering period. Event study methodology is used during the early Fed’s announcements at 2013. The aim of the study is to evaluate both the event study methodology and abnormal return performance of the emerging market stock exchanges during tapering period. The authors also check for abnormal volatility during tapering announcements, specifying it with GARCH (1,1) model. The results indicate that, together with China and Greece, the fragile five economies are differentiated from the rest of the emerging markets during tapering announcements. Moreover, the striking result that the authors see is Turkey is affected more negatively than any other fragile five members in this period. Yet, the authors did not find any significant abnormal volatility effect brought by tapering announces. In addition, the authors find emerging markets are not semi-strong form efficient during tapering period.

Banks’ performances are important not only for the stability/growth of the firms and economic situation of a country; it is also important for the stability/growth of the world economy. The aim of this study is to determine the priorities of CAMELS dimensions with respect to bank performance via AHP method and to present the results as an information to researchers, investors and decision-makers. Furthermore, this study shows the feasibility of many statistical hypothesis tests by separately generated priority series from expert’s views based on performance and bankruptcy risk of banks.

CAMELS, used for bank performance appraisal, is a financial ratio analysis comparing the ratios of banks with the industries. Along with evaluating the determined priorities of CAMELS dimensions based on performance of banks, the differences of the views between the priorities based on risk of bankruptcy and performance of banks, the view differences according to the demographic characteristics of the experts, etc., are also examined. According to analysis, “Asset” (24.75%) is the most important dimension of CAMELS, and then “Earnings” (19.16%), “Liquidity” (18.54%) and “Management” (17.68%) are thought as following important dimensions with respect to bank performance. Dimensions of “Sensitivity to market risk” (11.11%) and “Capital” (10.03%) are observed as weak dimensions.

Worldwide foreign trade operations and financial investment activities are realized as convertible currencies. The level of exchange rate volatility may be higher in developing countries than in developed countries. This situation can be seen both in the real sector and in the financial sector. In the real sector, especially companies that meet their raw material and intermediary needs through import are affected by the exchange rate volatility, while the financial sector is more affected by exchange rate volatility in the markets with weak-efficiency levels. These determinant attributes reflect the characteristics of developing countries. Therefore, the identification of parameters that can provide knowledge about changes in exchange rates is important for both the real sector and the financial sector. Also, this knowledge is also important regarding increasing the effectiveness of exchange rate interventions, one of the instruments of monetary policy in modern central banking practices. This chapter aims to attain explanation capacity of domestic macroeconomic factors of convertible exchange rates and rules for the application made by OneR algorithm which is one of the data mining methods and the machine learning techniques. The reason for using only domestic macroeconomic variables and the exclusion of international macroeconomic variables in the study is that it is more frequent to attain knowledge about domestic macroeconomic variables which are estimated within the countries. Thus, it is aimed to increase the frequency of observing convertible exchange rates with the rules acquired by the OneR algorithm. It is also aimed to investigate whether the exchange rate movements included in this study can be modeled by using only domestic macroeconomic variables as a glocal approach. EUR/USD, GBP/USD, JPY/USD, and TRY/USD exchange rates are analyzed within the scope of the chapter. The findings of the chapter show that (1) the problem of estimation of the exchange rate movements is insufficient to solve by OneR algorithm; (2) it is seen that the success rate of the models with a relatively small number of input variables is higher in this application; therefore, the importance of the use of lean models is supported by the results of the chapter; and (3) in terms of the primary aim of the survey, Turkey’s domestic macroeconomic variables are not sufficient to explain convertible exchange rates. As the reasons for these findings, it can say that the Turkish economy is a developing economy and that the economy is small compared to developed country economies.