CUBS Finance Working Paper No. 07
20 Pages Posted: 19 Aug 2003
Date Written: 2003
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.
Keywords: Empirical Bayes method, Beta estimation, Forecasting, Capital Asset Pricing Model, Initial public offering
JEL Classification: C2, C11, C52, G1, G12
Suggested Citation: Suggested Citation
Muradoglu, Yaz Gulnur and Zaman, Asad and Orhan, Mehmet, Measuring the Systematic Risk of IPO's Using Empirical Bayes Estimates in the Thinly Traded Istanbul Stock Exchange (2003). International Journal of Business, Vol. 8, No. 3, 2003; Cass Business School Research Paper; CUBS Finance Working Paper No. 07. Available at SSRN: https://ssrn.com/abstract=420245 or http://dx.doi.org/10.2139/ssrn.420245