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

20 Pages Posted: 19 Aug 2003  

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Asad Zaman

Pakistan Institute of Development Economics

Mehmet Orhan

Fatih University - Department of Economics

Date Written: 2003

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.

Keywords: Empirical Bayes method, Beta estimation, Forecasting, Capital Asset Pricing Model, Initial public offering

JEL Classification: C2, C11, C52, G1, G12

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

Yaz Gulnur Muradoglu (Contact Author)

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

Asad Zaman

Pakistan Institute of Development Economics ( email )

Quaid-i-Azam University Campus
P.O.Box 1091
Islamabad, Federal Capital 44000
Pakistan

Mehmet Orhan

Fatih University - Department of Economics ( email )

Istanbul
Turkey
+90 212 889 08 10 (Phone)
+ 90 212 889 02 32 (Fax)

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