162 10 3494 https://omeka.ibu.edu.ba/files/original/7bc6c09a76afe2899d4c9a803e0db511.pdf 12dd89cc0808bb28d4df942df0a7f269 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Sovereign Credit Risk and Credit Default Swap Spread Reflections Neslihan Topbaş Atılım University, Ankara, TURKEY ntopbas@atilim.edu.tr The already experienced turbulence in the global financial system has focused the attentions of the market participants to especially sovereign risk; its major determinants, systematic nature as well as its contagion potential. In this study, the direction of the analysis of the sovereign risk is within the framework of the credit default swap (cds) transactions. The sovereign risk can also be elaborated by using the bond spreads of the sovereign but the latter is also driven by factors other than the sovereign risk such as the interest rate movements, supply conditions, liquidity etc. The already available economical and financial data provides invaluable opportunity to analyze the sovereign risk anticipation of the financial markets as it incorporates the valuation of cds in real crisis times of 2008 and 2009 and 2011-first half of 2012 as well as the before and after economic and financial data of the selected countries namely Brazil, Turkey, Russia, Korea, Greece and Spain. The attitude of the investors towards risk as reflected in the financial market conditions affect the cds spreads of the sovereigns and this creates commonality which can be measured by the correlation between the individual sovereign cds spreads. In order to explain the co-movements in the cds spreads of the selected countries into a smaller number of common factors, principal component analysis was performed and it is seen that the first principal component captures nearly 62 percent and the first three component captures nearly 90 percent of the correlation matrix In this Study, in order to capture the relationships between the cds spreads and the country-specific and the global financial and economic factors, regression analysis has been performed. The country specific factors are determined as foreign exchange rate, foreign currency reserves, local stock market returns, external debt, and current account balance as a percentage of gross domestic products. The global financial and economic factors added to the model as independent variables are indexes about US Stock Market Return, US Treasury yields, US corporate yields and Emerging 224 �International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo market yields, as well as indicators of equity, term and volatility premium and bond and equity flows. The relationship between the global financial variables and cds spreads reveals the fact that the risk appetite in the global financial market affects the credit risk perception and consequently the cds spreads regardless of the employed indicator of the risk appetite. Specifically, it is also determined that domestic economic situation has significant effects on cds spreads (excluding Greece who experienced considerable turmoil in its economic and financial position), the local variables explain more than 75 percent of the cds spread level and this ratio increases to more than 80 percent when four emerging market countries are referred. Keywords: Credit Default Swaps, Sovereign Risk, Global Financial Indicators, Risk Appetite, Financial Crisis. 225 � https://omeka.ibu.edu.ba/files/original/fe394422cfcb082ee17c1587460d1cb0.docx 7b78ea5ae1667d305abe19e7a6a99592 https://omeka.ibu.edu.ba/files/original/4744ecbff8fbd0ec538835f36d174841.pdf 6a354a8b24b3b436629e372e9393b393 PDF Text Text International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Sovereign Credit Risk and Credit Default Swap Spread Reflections NeslihanTopbas Atılım University, Ankara, Turkey ntopbas@atilim.edu.tr Abstract The already experienced turbulence in the global financial system has focused the attentions of the market participants to especially sovereign risk; its major determinants, systematic nature as well as its contagion potential. In this study, the direction of the analysis of the sovereign risk is within the framework of the credit default swap (cds) transactions. The sovereign risk can also be elaborated by using the bond spreads of the sovereign but the latter is also driven by factors other than the sovereign risk such as the interest rate movements, supply conditions, liquidity etc. The already available economic and financial data provides invaluable opportunity to analyze the sovereign risk anticipation of the financial markets as it incorporates the valuation of cds in real crisis times of 2008 and 2009 and 2011-first half of 2012 as well as the before and after economic and financial data of the selected countries namely Brazil, Turkey, Russia, Korea, Greece and Spain. The attitude of the investors towards risk as reflected in the financial market conditions affect the cds spreads of the sovereigns and this creates commonality which can be measured by the correlation between the individual sovereign cds spreads. In order to explain the co-movements in the cds spreads of the selected countries into a smaller number of common factors, principal component analysis was performed and it is seen that the first principal component captures nearly 62 percent and the first three component captures nearly 90 percent of the correlation matrix In this Study, in order to capture the relationships between the cds spreads and the country-specific and the global financial and economic factors, regression analysis have been performed. The country specific factors are determined as foreign exchange rate, foreign currency reserves, local stock market returns, external debt, current account balance as a percentage of gross domestic product. The global financial and economic factors added to the model as independent variables are indexes about US Stock Market Return, US Treasury yields, US corporate yields and Emerging market yields, as well as indicators of equity, term and volatility premium and bond and equity flows. The relationship between the global financial variables and cds spreads reveals the fact that the risk appetite in the global financial market affects the credit risk perception and consequently the cds spreads regardless of the employed indicator of the risk appetite. Specifically, it is also determined that domestic economic situation has significant effects on cds spreads (excluding Greece who experienced considerable turmoil in its economic and financial position), the local variables explain more than 75 percent of the cds spread level and this ratio increases to more than 80 percent when four emerging market countries are referred. Keywords: credit default swaps, sovereign risk, global financial indicators, risk appetite, financial crisis 1 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Introduction The nearness of Greece to sovereign default situation which was resulted with the biggest sovereign debt restructuring in the amount of approximately €100 billion out of the total debt of €350 billion of the country, triggered the relevant credit default swap transactions under the restructuring definition of the credit event. This had been constituted an important test of the financial system to the payment on sovereign bonds as referenced in credit default swaps (cds). In fact, this restructuring had been the breaking point of the long lasting Eurozone sovereign debt crisis since 2008, and considered to be the beginning point of another era of financial turmoil which will probably end up with new sovereign default cases. This experience was an impressive illustration of the usefulness of cds as an insurance against default risk. A cds is a credit derivative contract providing protection against the default risk (credit event) for a given reference entity (sovereign or corporate). The cds may cover a bond issued by the reference entity or the reference entity itself directly (in which case the contract will be unwound through a cash settlement only). Generally, the buyer of the cds has already exposed to the risk of the reference entity by lending it in the form of loans or bonds and, by the use of the cds, she acquires the right to sell the specific bond which she already owns (reference bond issued by the reference entity) at par value if a credit event occurs in exchange of the payments to the seller in the agreed amounts at regular intervals until the cds expires or a credit event occurs. In the latter case, the buyer makes a final payment and the swap is unwound either by delivery of the underlying asset or in cash. Within this framework, the Depository Trust and Clearing Corporation (DTCC) who provides post-trade processing services for over the counter (OTC) credit derivative trades announced that it completed the restructuring event for the Hellenic Republic (Greece sovereign entity) and a total of US$2.89 billion in net funds were transferred from net sellers of protection to net buyers in March 2012. The amount of the net funds to be transferred was calculated on the basis of the auction for Greece sovereign bonds which was conducted in accordance with the International Swaps and Derivatives Association (ISDA) protocols1 This experience revealed the importance of the legal specification of the “credit events” on the time of the initiation of the cds transaction whether the reference entity is sovereign or corporate. The already experienced turbulence in the global financial system focused the attentions of the market participants to especially sovereign risk; its major determinants, systematic nature as well as its contagion potential. In this study, the direction of the analysis of the sovereign risk is within the framework of the credit default swap transactions. The sovereign risk can also be elaborated by using the bond spreads of the sovereign but the latter is also driven by factors other than the sovereign risk such as the interest rate movements, supply conditions, liquidity etc. In the first section of this study, the cds will be elaborated especially in terms of the definition of the credit event under the legal documentation. The aim is to underline that not only default, but also restructuring of the debts can result with a cds to be unwounded. The Second section of this Study will begin with a literature review in order to figure out several different approaches to analyze the sovereign credit risk concept. In the next section, the data and the methodology employed to analyze the sovereign risk within the framework of cds transactions and the findings will be revealed. 1 http://www.dtcc.com/news/press/releases/2012/dtcc_successfully_completes_greek_cds.php 2 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo In the analysis, the multivariate approach of Longstaff, Pan, Pedersen and Singleton (2011) has been employed. In their study, Longstaff and friends used the country specific macroeconomic factors such as domestic stock market return, foreign exchange rate against US $ and foreign reserves of the sovereign and also global financial factors that may indicate the risk appetite such as US Stock Market Returns, US Treasury yields, corporate yield index etc. The main contribution of this study will be covering the data of the whole crisis time of 2008 and 2009 and especially Greece experience in the late 2011 and beginning 2012 although the sample countries is relatively limited. The already available economical and financial data provides invaluable opportunity to analyze the sovereign risk anticipation of the markets as it incorporates the valuation of cds in real crisis times of 2008 and 2009 and 2011-first half of 2012 of the selected countries namely Brazil, Turkey, Russia, Korea, Greece and Spain. When selecting the countries firstly the countries which have been in trouble in terms of sovereign riskiness such as Greece and Spain were preferred (although they have been considered as developed countries so far), then geographical diversification of the emerging market countries was considered in order to point out the possible region specific developments (if exists). Credit Events under Cds Legal Documentation Credit event refers to any credit-related event that triggers the realization of the obligations under a credit default swap. Although the parties may agree to exclude one or more of the defined events, the following six situations are industry-standard as defined in the 1999 ISDA credit derivatives definitions: Bankruptcy is defined in the section 5(a)(vii) of the ISDA Master Agreement and it encompasses a large variety of events associated with bankruptcy or insolvency proceedings under English law or New York law, as well as analogous events under other insolvency laws. The ISDA scope of bankruptcy is wider than insolvency-related events used by rating agencies, certain actions taken by the reference entity, like a board meeting or a shareholders meeting to consider the filing of a liquidation petition, may be considered to be an act of bankruptcy as well. 2 Obligation Acceleration concerns the situation, excluding a failure to pay, where the relevant obligation becomes due and payable before its normal expiration date but it is mostly the result of a default by the reference entity. Generally, the credit event is accepted to occur only if the relevant sum being accelerated is above a minimum threshold. Obligation Acceleration is different from obligation default in that if in a credit derivative transaction, obligation default is already specified as a credit event, and obligation acceleration will only be relevant if the default requirement is lower than the one of the obligation default. Obligation Default concerns the situation, excluding a failure to pay, where the relevant obligation becomes capable of being declared due and payable as a result of a default by the reference entity before the due time but the relevant sum being defaulted must exceed a minimum threshold generally. Failure to Pay refers to a failure of the reference entity to make any payments under one or more obligations at due time but usually it takes into account any contractual or institutional grace period before the credit event is triggered. 2 http://www.ericbenhamou.net/documents/Encyclo/Credit%20event.pdf 3 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Repudiation/Moratorium refers to situations where the sovereign disaffirms, disclaims or otherwise challenges the validity of the relevant obligation. Usually, like for obligation acceleration or default, a default requirement threshold is specified. Restructuring concerns situations where the terms of the relevant obligation especially the external indebtedness in the case where sovereign is the reference entity are modified and become less favorable to the obligation holders. Typical examples are a reduction in the principal amount, a decrease of interest payable under the obligation, a postponement of payment, a change in ranking in priority of payment or any other composition of payment. However, a restructuring event would not be considered to occur in circumstances where the relevant event does not result in a deterioration of the creditworthiness or financial condition of the reference entity. In fact, until Greece experience, sovereign is perceived to be risk free in the financial markets and consequently the pricing of a cds transaction for a specific sovereign was set lower than a reference entity other than sovereign located in the particular country. 3 This positioning has been a result of credit risk, any credit risk other than sovereign also includes sovereign risk as the sovereign may prohibit to make any payment abroad. Basically, the sovereign and corporate default differ in two main aspects; firstly in the case of the corporate default the courts are generally entitled both liquidation and restructuring mechanisms to the assets of the borrower to enforce the creditor rights but in case of the sovereign as most of the assets are located domestically within a country, sovereign cannot credibly commit to handing these assets over in the event of default. On the other hand, the sovereign immunity protects the assets of the sovereign outside the country as well. (Ang and Longstaff 2011, p.4) Secondly, there exists no recognized international process to be followed in case of the sovereign default. In practice, when such a probability occurs, either intergovernmental institutions such as International Monetary Fund comes into the scene in order to provide lending to the country in trouble or consortium of the international banks sit on the table in order to restructure the debt in order to make it payable for the borrower country. The default of any sovereign can be detrimental not for only itself but also for the global financial system as a whole because of the relatively larger amounts of indebtedness. The external indebtedness of the less developed countries is owed mainly to the intergovernmental institutions such as IMF and World bank as they have limited access to private financial system and those institutions lend the money collected from the member countries. For many of the emerging and all of the developed countries, generally external indebtedness has been owed to the international banks and financial institutions. In such a framework, the default of any sovereign is a shock to the international investor confidence so no one wants it to be realized but this does not mean that the financial system never permits any sovereign default. It is a fact that some countries have never defaulted in the past such as the United States at the federal level, Canada, Australia, South Africa (except for an episode related to sanctions in 1985), most Asian countries, and most Arab countries. On the other hand, Latin America as a region is represented in all default waves since the 1820s as Argentina, Ecuador, and Uruguay defaulted in the most recent wave as well as most previous waves. After the worst global financial crisis in 1930s, the default wave occurred in 1980s affecting many countries especially the newly independent Africa countries. The second important default cycle realized in the period between 1998-2004, 3 i.e. Reinhart and Rogo (2008) illustrate the public misperception of government debt as a safe haven on their Paperpreparedforpresentation at theAmericanEconomicAssociationmeetings in San Francisco, January 3, 2009. 4 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo but IMF played a more aggressive role in preventing debt restructurings. (Sturzenegger and Zettelmeyer 2007, p.9-10) Although it is said to be postponed but not prevented yet, the last default cycle commenced in 2008, ironically not affecting Latin America and other developing countries but developed ones in Europe such as Greece, Spain, Portugal and even France. Literature Review As the financial reports of a company reveals the financial position of a corporation, the macro economic factors shows the debt payment capacity of the sovereign as well as the vulnerability of this capacity to the external shocks. There exists no agreement on the determinants of sovereign default risk, as reflected in sovereign credit spreads. While some of the analysis show that the government‟s ability to service its debt depends on the underlying macroeconomic fundamentals and, therefore, is country-specific, some others revealed strong commonality in the movement of cds spreads regardless of the country specifics. Most of the early studies had taken into account the individual macroeconomic variable(s) as independent variable and test the relationship between those macro-economic variable(s) and cds spreads such as: - Low Current Account Balance to GDP ratio signals a decrease in the default probabilities of a country and reduces the cds spreads (Georgievska et al. 2008, p.1037) - High Import to GDP ratio should lead to higher cds spreads as foreign exchange outflow increases (Georgievska et al. 2008, p.1040) - High Debt to Export ratio increases cds spreads (Catao and Sutton 2002, p.16) - High Reserves to Debt ratio should have a negative relationship with the sovereign cds spread (Catao and Sutton 2002, p.16) - High debt to GDP ratio is positively related with cds spreads (Mellios and Blanc 2006, p.363) - High inflation rate should increase the credit risk attached to a nation (Mellios and Blanc 2006, p.365) - Economic growth decrease the credit risk associated to that country and thus its cds spread (Baek et al. 2005, p.544) - A devaluation of the exchange rate of a country should increase the price of the cds spreads as it conveys a doubtful credit position (Baek et al. 2005, p.545) - High Household Debt to GDP ratio of an economy increases the credit risk attached which should lead to higher cds spreads (Reinhart and Rogoff 2008, p.119) - The Risk-free rate should therefore be negatively related to cds spreads (Fontana and Scheicher 2010, p.16) - Spreads on emerging market instruments have strong and well-defined relationships to their credit rating, maturity, and currency denomination. (Kamin and Kleist 1999, p.16) - Sovereign ratings effectively summarize and supplement the information contained in macroeconomic indicators and are therefore strongly correlated with marketdetermined credit spreads.( Cantor, R. and Packer, F. (1996), p.37) 5 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo As cds was originated as an insurance against credit risk, the theoretical findings that particular country specific macro-economic variables determine the cds spreads is not surprising. Nevertheless, the observed degree of co-movement of the individual country cds spreads pave the way for researchers to identify the common factors(s) driving sovereign credit risk and to study the common variation in global sovereign cds spreads. The findings supporting the commonalities in credit spreads are summarized below: - Spreads on sovereign bonds today co-move to a greater extent than they did historically as they are driven more by global events than country specific fundamentals.(Mauro, Sussman and Yafeh 2002, p.703) - The sources of credit risk for the emerging markets can be split into three elements: The first element, which is the least relevant, is the result of shocks through country-specific fundamentals. The second element is the result of global variables, such as US stock market returns and the slope of the US Treasury bond curve and the third and most important, element is the contribution of regional factors, such as a systematic component of the four stock markets, a systematic volatility component and investor sentiment.(Weigel and Gemmill 2006, p.497) - Since the structural models of sovereign credit risk focus on country-specific factors in explaining the credit spread of sovereigns, they fail to capture aggregate market effects which are important determinants of sovereign credit spreads (Westphalen 2001, p.20) - A single common factor drives the common portion of variation in sovereign bond spreads for a sample of 15 emerging market countries (McGuire and Schrijvers 2003, p.20) - Sizeable common factor in the changes of emerging market spreads is related to international developments. (Garcia-Herrero and Ortiz 2007, p.150) - Liquidity, solvency and economic stability variables significantly affect the market premium of country risk as reflected in the cds spreads. (Baek, Bandopadhyaya and Du 2005,p.547) - The credit spreads for Mexico, Turkey and Korea share a strong common relation to US stock market volatility as measured by the VIX index.( Pan and Singleton 2008, p.2380) - The distance-to-default is largely driven by systematic global and regional factors, so investors should treat the credit risk of these emerging markets as nondiversifiable. ( Weigel and Gemmill 2006, p.490) The research of Longstaff and friends (2011) stipulates that sovereign credit risk is driven much more by global financial market variables and global risk premia than by local economic forces. This dependence on common global factors such as U.S. stock market returns and high-yield spread changes induces significant correlation into the credit spreads of a broad cross-section of sovereign nations. After inclusion of the data of crisis time of 2008 and 2009, they went one step further and determined that both the risk-premium and default-risk components of cds spreads are strongly related to global macroeconomic factors. Another update research on systemic sovereign credit risk as reflected in the cds spreads are done through comparing the credit risk components of the US and Europe member countries and resulted with interesting findings. (Ang and Longstaff 2011)Using a multifactor affine credit model, the sovereign credit risk was decomposed into a systemic component and a sovereign-specific component and it is found that the systemic risk represents a much smaller fraction of total credit risk for US states than is the case for members of the EMU although the reverse was expected. The commonality in sovereign cds spreads was also elaborated on a consumption based framework and the role of US consumption forecasts and volatility in explaining sovereign 6 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo cds was investigated.(Augustin and Tedongap 2011) The findings suggest that sovereign credit risk is priced globally rather than locally, consistent with previous literature. The Data The data used in this study is monthly US Dollar denominated cds spreads of the selected countries, namely Turkey, Brazil, Russia, Korea, Greece and Spain with 5 year maturity. 5 year is selected as the relevant maturity in order to better address the reflections of the changes in sovereign default risk to cdspremia as 5 years is accepted as the most representative maturity by the market players with regards to its liquidity. The sample period is from May 2005 to June 2012, this period is selected because of the availability of the data not only of cds spreads but also other country specific and global macroeconomic and financial factors. All of the data is gathered from Datastream. All cds spreads are quoted in basis point (bps) and Table 1 provides summary information about the sovereign spreads. Table 1 clearly reveals the situation of cds spreads when default probability increases, as in Greece. The min and max values of cds spreads of Greece diverge considerably while the standard deviation shows great variance. The second highest vulnerable country seems as Russia as reflected in standard deviation, followed by Spain. The most stable cds spread movements belongs to Korea that was prepared to deal with new crisis after 1997-1998 crisis in terms of foreign reserves, improved financial structures of firms and banks, relatively mild house price hikes, and the sound government budget, as well as the foreign exchange policy that honored market forces, the monetary policy that stabilizes domestic economy, and the fiscal policy that was carried out on time. (Cho 2010, p.21) Correlations and Principal Component Analysis There exist many different views and definitions about the credit risk but it is widely accepted that credit risk consist of two components: the default risk and the spread risk. The default risk is relevant with the non-compliance of the borrower to the legal, financial and operational obligations covered and so, more related with the documentation-related aspect of a transaction creating exposure. The other component is the spread risk and it is relevant with the market value of the contract when the credit quality of the borrower changes. Reflecting this definition of the credit risk to the definition of cds spreads, the decomposition generally clarifies the possible risk factors that may have affect. The magnitude of the default risk component is determined by the factors affecting the probability of the default of the specific entity, sovereign in our analysis, or from a different terminology the arrival rate of default which is highly country-specific. On the other hand, the second component, spread risk is clearly relevant with the market conditions affecting all other transactions such as liquidity in the markets, risk appetite etc. In this framework, the market related component of credit risk is applicable to all cds transactions especially the sovereign cds where sovereigns are from the same market segment such as emerging markets so co-movement in the cds spreads of the sovereigns must not be surprising. It is accepted that the financial market conditions do affect the cds spreads of the sovereigns and this, probably, creates some degree of commonality which can be measured 7 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo by the correlation between the individual sovereign cds spreads. The commonality is originated from some principal factors which can be measured by principal component analysis. The proposed co-movement of the cds spreads reveals itself on the correlation for the counties and Table 2 shows the pair-wise correlations of the cds spread changes of the selected countries. It is seen that Greece and Spain considerably diverged from other four countries whereas the other four countries have very high correlations between themselves. Table 3 indicates support to the idea that in crisis time the co-movement between the individual country cds spread changes increases. September 2008 is defined as the beginning of the crisis time and the pairwise correlations are calculated by using the data before and after that period. For all of the pair of sovereigns, the correlation increased. The highest increase is realized in the correlations of the Spain with other countries, reflecting the co-movement further. In order to explain the co-movements in the cds spread of the selected countries into a smaller number of common factors, principal component analysis was performed. Table 3 stipulates the principal component analysis of the correlation matrix of cds spread changes as given in Table 2. The results indicate that there is significant amount of commonality in the variation of cds spreads. The first principal component captures nearly 62 percent of the variation, whereas the first three components capture nearly 90 percent of the correlation matrix. This finding is parallel to the determinations of Longstaff and friend (2011) although they used a different base period (October 2010- January 2010) and a different sovereign set of 26 countries. Regression Analysis The empirical studies focusing on sovereign risk as reflected in the cds spreads have generally adopted two different approaches, one of which is based on comparing the actual credit spreads with the selected structural model and the other has been regressing the changes in the credit spreads with the change rate of the selected variables. In this study, in order to capture the relationships between the cds spreads and the country-specific and the global financial and economic factors, regression analysis has been performed; the dependent variable is set as the change in cds spreads and the change in the independent variables which are summarized below are grouped under two main headings, the countryspecific variables and the global financial variables and the rate of change of these variables. Country-specific Variables The country specific economic variables have been selected by referring their affects to possible payment failure of the sovereign. All the data mentioned below are gathered from DataStream which is a product of Thompson Reuters, unless otherwise stated in the definition of the variable. It is also noteworthy to mention that all of the country-specific factors mentioned are also included in the sovereign rating methodology of the major rating agencies as Standard &Poors and Moody‟s. - Cds Spreads: The spreads of US Dollar denominated sovereign cds transactions with 5 years maturity of each country are used. - Foreign Exchange Rate: The monthly local foreign currency rates per U.S. Dollar against domestic currencies are used. There exist floating exchange rate regimes in all of 8 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo the selected countries, consequently the foreign exchange rate acts as a barometer against the possible fluctuations in of the countries capability of paying external indebtedness except Spain and Greece having Euro as the domestic currency. - Foreign Currency Reserves: The U.S.Dollar equivalent of the foreign currency reserves is used. From the lenders side, the higher the amount of such reserves, the more comfortable they feel as in tough times the sovereign will be able to pay its debts without needing further financing. - Local Stock Market Returns: The monthly changes in the local market indexes are taken as the measure of the local market return. All the countries involved have wellfunctioning local equity markets and those markets reflect not only domestic real economical balances but also the global risk appetite through foreign portfolio investments. The factors explained above were the ones also employed by Longstaff and friends (2011) who determined that the country-specific factors comes behind the global market factors in determining the sovereign riskiness and cds spreads. In order to better address the sovereign default risk as perceived by the market participants two more country-specific factors have been added to the model: - External Debt: The U.S.Dollar equivalent of the total external indebtedness of each sovereign is used. From the lenders side the higher the external debt of a country, the more vulnerable it would be to fluctuations in the international funding environment. - Current Account Balance as a percentage of Gross Domestic Product: This ratio represents all the economic activities of the nation affecting the foreign exchange flows, it includes net foreign trade and also capital flows. This variable is added to the original model referring to the study of Hilsher and Nosbusch who worked on the effect of particularly the export performance of the countries to its debt paying capacity. (Hilsher and Nosbusch, 2010) Global Financial Variables Many of the earlier research have ended up with the determination that the cds spreads are driven more by the global financial markets than the country-specific variables. The following factors representing the overall climate of the global environment are employed in the analysis: - US Stock Market Returns: The S&P 500 composite index is employed in order to reflect the risk appetite as indicated by U.S. equities. In order to fully reflect the stock market developments, not the excess return but the monthly return as calculated by the changes in S&P 500 composite index has been employed. - US Treasury yields: As for the cds spreads 5 year maturity is selected as reference term, the S&P 5-Year U.S. Treasury note Excess Return Index is employed in order to address the fluctuations in the bond returns. In addition to this index, the yields of 5 year maturity constant maturity treasury (CMT) rates computed by the Federal Reserve Board are also employed. CMT is based on the corresponding Treasury yield curve rate and is usually computed by averaging either the past week's or the past months daily rates of the underlying constant maturity Treasury. 9 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo - Corporate Yields: The index of the spread of the US corporate with rating AAA minus that of US corporate with rating A as produced by Merrill Lynch is used. For the difference in the spreads of the US non-investment grade corporates with BBB and B ratings, the difference of the indexes for the both group of the corporates as produced by Thompson Reuters is used. Both of the variables are perceived as the measure of risk/return preferences of the investors. - Equity Premium: The monthly price/earnings ratio for the S&P 100 index is used as a measure of equity premium. - Volatility Premium: Chicago Board Options Exchange Market Volatility Index, also named as VIX, measuring the market's expectation of stock market volatility over the next 30 day period is used as a proxy for volatility premium. Among the market-level variables, changes in VIX, a proxy for market-wide risk aversion or the so-called “fear factor”, have more significant explanatory power than others. - Term Premium: The index calculated by Barclays to represent the spread difference between the US Treasury bonds with 5 years and 1 year maturity is used as a measure of the term premium. - Bond and Equity Flows: The Datastream provides the net flow of mutual funds to global bond and global equity markets and those amounts are used. - Emerging Market Index: As a measure of the risk appetite towards specifically to the emerging market countries EMBI index as calculated by JP Morgan is employed. The EMBI index track foreign-currency denominated government bond yields for a number of emerging market economies and it is commonly used as measures of country risk. Correlations of the Variables with the cds Spreads The variables are intentionally selected with regards to their anticipated relationship with the cds spreads which is thought to have affect on the sovereign risk. In this framework, the correlation between monthly changes in the value of each variable and cds spreads may be questioned when evaluating their effect on the cds spreads. A correlation matrix indicating the pairwise correlations of each variable with the cds spreads for each sovereign is given in Table 5. Also, by using the country specific eigenvalues as weights, a comprehensive correlation was calculated in order to measure the correlation of each variable and those correlations are given in the rightmost column of Table 5. Also, in order to better address the co-movement between the cds spreads and global financial variables before and after the financial crisis, the correlations of each variable with individual countries cds spreads is given in Table 6. Referring to the correlations given in Table 5 and Table 6, the following determinations can be made: - Amongst the country-specific variables, the equity index has the highest negative correlation with the cds spreads. While the correlation is above -0,60 for the countries in the emerging country segment, it is lower for Spain and Greece, respectively -0,215 and 0,357. This strong negative correlation is in line with the finding of Coronado and friends (2012) but the lower correlation of Greece and Spain contradict with their finding that correlations are more significant in the case of the countries with 10 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo higher risk premiums (Italy, Greece, Spain, Italy and Portugal) than th others with lower cds spread levels. - There exist considerable positive relationship between the monthly changes in FX rates and the cds spreads(on average +0,53). As devaluation of the domestic currency generally signals difficulty in the external economic positioning of a country, such a parallel increase in the cds spreads is understandable. - Although FX reserves and foreign indebtedness of a country have been regarded as amongst the major default risk components, such relations are not confirmed with the data employed referring to Table 5. - Amongst the global financial market variables, the highest and negative correlation exist between the monthly changes in S&P 500 index and cds spreads of the selected countries. This finding is in line with the findings of Longstaff and friends (2011). There is extensive evidence that shocks to the US financial markets are transmitted globally. It is thought that US security prices incorporate information about economic fundamentals or market liquidity that is relevant to a broad cross-section of countries. Referring to Table 6, the negative relationship widens after financial crisis for each of the country reflecting a further highlighting the risk concerns of the investors. - The correlation of the monthly changes in cds spreads and EMBI index represents a considerable positive relationship (on average +0, 42). The EMBI widens as risk aversion increases, so do cds spreads. Table 6 shows that generally positive or slightly negative relationship between two variables before crisis turn to higher negative relationship after crisis. It is noteworthy to mention that while the correlation of EMBI spreads and cds spreads are very low for Greece and Spain, they shows a negative relatively high relationship after crisis like other emerging market countries analyzed. - Accepting US Treasury bonds as a safe heaven, the sovereign bonds and US investment grade corporate bonds compete for funds as alternatives of the investment decisions. In this regard, the negative and relatively high relationship between the changes in the spread difference of US corporate bonds with AAA and A ratings and the cds spreads of the selected countries, which is -0,379 on average is understandable. Referring to Table 5, for Greece and Spain, the correlation is -0,06 and -0,11 respectively, meaning that they differ from the emerging market countries. However, the correlation increases considerably for both countries after the crisis as stipulated in Table 6. - Another US- financial market indicator is spread difference of the corporate with BBB and B ratings. Table 5 shows a negligible correlation between those spreads and cds spreads. However Table 6 shows a different picture; while before crisis there exist negative correlations for all the countries, after crisis the relations become positive and relatively high for all of the countries. This can be explained in such a way that as risk aversion increases in financial markets, the sovereign, as well as non-sovereign US risks are regarded as within the same “risky” assets group. - The relationship between 5 years US Treasury excess returns and cds spreads is ambiguous referring to Table 5 as both has a correlation of -0,06. However, Table 6 signals a relatively high negative relationship after crisis although the relationship has positive sign before. This can be interpreted again with risk aversion in the market after crisis when 11 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo funds flow to US Treasury as safe heaven, spreads fall while cds spreads widened. The correlation between the cds spreads and CMT index which is another indicator of US Treasury yield is higher as compared to 5 years UST Excess Returns. - Amongst the variables representing the premiums, the monthly changes in the volatility premium as represented by VIX index has highest positive relationship with cds spread. This finding is in parallel with the findings of Longstaff and friends. (2011), Pan and Singleton (2008) and Remolona and friends (2008). - Unlike the expectations, the correlation of the monthly changes in the both flows, equity and bond, are not that significant. Results of the Regression Analysis Putting together all the selected and analyzed variables with regards to their relationships with the monthly cds spread changes of the selected sovereigns, firstly the regression was performed with only the country specific data; the computed t statistics for each variable is given in Table7. Specifically, Adjusted R2 for each country shows that the individual country economic situation has significant effects on cds spreads except Greece who experienced considerable turmoil in its economic and financial position. Although it is presumed that this deterioration has to be reflected in the cds spreads, the announcement of ISDA that the credit event occurred in the form of restructuring inevitably created imbalances such as illiquidity which in turn may make the cds spreads meaningless. The relationship between US Dollar against domestic currency rate and cds spreads is rather ambiguous as out of 6 countries 2 of them have negative signed t statistics. One of the recent studies for explaining and predicting sovereign credit risk with exchange rate volatility revealed the facts that the exchange rate volatility has an important role in the structural model of sovereign risk but the market does not fully price in the sovereign balance sheet information into CDS spreads. ( Duyvesteyn and Marten, 2011) When evaluating the affect of the variables in determining the cds spreads individually, the negative local stock market return coefficient across all the countries attracts attention. This can be understood in such a way that when many things go well in an economy this is reflected in the stock index to rise and cds spreads to fall.4 The relationship between the FX reserves of a country and cds spreads is also negative across countries. From the foreign lenders perspective, the higher FX reserve means higher payment capacity without the need of further financing, more generally a decline in foreign currency reserves, and/or a rise in the foreign debt default will increase cds spreads. 5 The relationship between external debt and cds spreads is also impressive in having positive signed t statistics in all countries except Greece again. This positive relationship is logical and confirmed with many other research such as the one performed by Garcia and 4 Therelationshipbetweenstockmarketsandtherealeconomicactivity has beenextensivelydebated in themacroeconomicandthefinanceliterature. Since 70‟s, standardvaluationmodelsestablishthattheaggregatestock market is determinedbymacroeconomicfundamentals [Cochrane (1991), Fama (1981)]. Evidencefromtherelevantresearchsuggesttheexistence of such a linkagebetweenthatfinancialmarketsandeconomicfundamentalsacross a variety of marketsand time horizons. 5 See IMF GFSR (April 2006), Box 3.6forsovereign CCA andimpact of changes in debtstructure. 12 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Rigobon (2005), who find that risk-based measures of debt sustainability are closely related to spreads in the case of Brazil. Balance of Payment as a % of GDP is included in the model as an independent variable because it is believed that this ratio not only gives the general foreign exchange related position of a country but also relates its external position with the economical capacity. From Table 7, it is seen that the relationship between this variable and cds spreads is negative across all the countries which is also logical as this ratio increases so the inflow from abroad in terms of trade relations as well as capital flows and the perceived riskiness will decrease as reflected in cds spreads. Despite all of these inferences, it is noteworthy to mention that many of the internal variables does not have significance at a 95 percent confidence level . Given the high level of Adjusted R2, this does not mean that the model does not work but some caution is needed to generalize the results. Broadening the perspective in the analysis of the cds spreads of the selected countries by adding the global financial factors, new regressions were realized and the produced t statistics are given on Table 6. First of all, comparing Adjusted R2 „s of Table 7 and 8, the considerable increase in the predictive capacity of the model for each country does worth to mention. With the inclusion of the global financial variables not only the predictive capacity increased, but also t statistics especially of the country-specific variables gained significance in 95 percent confidence level as can be seen from Table 8. In the last row of Table 8, a new dimension was included named as Local ratio by Longstaff and friends (2011) which is calculated as Adjusted R2 of the model when only country-specific variables included divided by the Adjusted R2 when all variables are included. This ratio shows that except Greece, the local variables explain more than 75 percent of the cds spread level. The situation for Greece is exceptional as it has already experienced a quasi-default occasion. In fact, the low local factor ratio for Spain can be interpreted with the revised market pricing of cds transactions of Spain after the Greek experience. The other countries, all of which are in the emerging market segment, have local ratios near or above than 80% which means that their credit standing is highly dependent on the local macro-economic environment. Surprisingly, Balance of Payment as a % of GDP ratio is the most significant local variable at 95 percent confidence level as t statistics are significant for 4 countries out of 6 but the direction of the relationship reveals some ambiguity. For Russia and Korea, t statistics have positive sign unlike the other countries which can be explained by the fact that these two countries are net exporters. The domestic equity index and cds spread are again negatively correlated except Turkey, but this variable is statically significant only for Greece. The external debt also keeps the direction of the relation as positive for all the countries except again Greece whose external debt in type of bonds have restructured to longer terms in the first quarter of 2012. The FX reserves variable is significant for Korea and Greece although the former indicates a positive and the latter a negative relationship. As the direction of the relation of this variable is ambiguous, may be it was better to specify the external debt as a fraction of GDP. From the Table 8, it is seen that many of the global financial market variables have significant t values for the countries involved. As parallel to the findings of Longstaff and friends (2011), the variable of 5 years US Treasury excess returns has significant t values across all the countries. The direction of the relationship between cds spread is equally 13 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo distributed among countries. A similar variable is Constant Maturity Treasury with 5 years maturity, 3 out of 6 countries it has significantly affected cds spreads. The softening risk appetite generally results with a shift of funds from US Treasury to equity and relatively high risk bonds and the first address is to less risky shares as covered by S&P 500 index, consequently increasing S&P 500 index generally signals improved risk appetite which is expected to smoothen the cds spreads as well, so a negative relationship is expected but the results of the analysis does not support this view. The direction of the relationship is negative for Brazil and Turkey and positive for the others. The relationship between the monthly changes in S&P 500 index and the cds spreads of the selected sovereigns has significance for 2 countries out of 6. In the market place, the return difference between the US corporate with AAA and A ratings decreases when the risk appetite smoothens, the same is true for also US corporate BBB and B difference as the investors will not differentiate the riskiness of the categories so a negative relationship is expected. The expectations are confirmed with the findings as can be seen from Table 8 as both of the variables have generally negative signs and it can also be said that this variable is also significant at 95 percent confidence level. The other group of global variables are premiums of equity, volatility and terms measuring the relation of the cds spreads with price earnings ratio of S&P 100 index, VIX and the index issued by Barclays indicating the spread difference between 5 and 1 year bonds respectively. From Table 8, it is clearly seen that all the premiums are statistically significant in determining cds spreads at 95 percent confidence level. The last interesting finding from Table 8 is that funds flow from US to invest to whether bonds or equity does not affect the cds spreads considerably although funds flow is expected to rise in good times when also cds spreads narrows. Conclusion The protection provided by a cds transaction has gained importance especially after the quasi-default situation of Greece. The market participants have begun to question not only the dissolution procedure of the cds transactions after the realization of a credit event but also the protection they provided and whether the cds spreads truly reflect the credit risk of the sovereign. The cds spreads should reflect the developments in the country-specific macro-economic fundamentals affecting the default probability of a sovereign in order provide hedging capability. However cds is a trade able instrument, the spreads are determined in the market place so inevitably are affected by the market climate. Many researchers have focused on the local and global factors affecting the cds spreads and this study also aimed to figure out the cds spreads of six countries, namely Brazil, Russia, South Korea, Turkey, Greece and Spain. The first four countries are amongst the emerging market segment and intentionally selected representing different geographical locations, as well as trade positions and Greece and Spain were selected in order to capture the possible dynamics in the cds spreads in case of quasi-default and default rumors which are the cases for them respectively. Whatever the source of commonality, it is a fact that the cds spreads of the sovereigns do move together as indicated by high correlation among the cds spreads of the selected countries for the period between May 2005 till May 2012 covering the crisis times of 2008-2009 as well as Euro-sovereign crisis. When evaluating the pair-wise correlations of monthly changes of the cds spreads the decomposition of Greece and Spain from the other 14 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo countries is seen easily. This decomposition may be attributable to the troublesome conditions they face but also to their origination to Euro area of economic cooperation and the developed nature of their economies. Not surprisingly, the emerging market countries have high correlations amongst themselves as the internal and external factors affecting their credit riskiness are similar. The monthly cds spreads movements are not only correlated highly but also a limited number of common factors have affect all of the sovereigns as 62 percent of the variation is explained by the first common factor and the first three component captures nearly 90 percent of the correlation. The relation of the cds spreads with some index such as S&P 500 index and VIX have been analyzed by many of the researcher and the result is parallel to earlier findings such that the principal source of variation across the sovereign cds spreads of the selected countries comes from US stock market return and volatility as defined by those indexes. The correlation of the monthly changes in each variable with that of the cds spreads indicated a very significant negative relationship between domestic equity index (Greece and Spain decomposed) and a relatively significant positive relationship with FX rates against US Dollar. The relation with FX reserves and foreign indebtedness are not confirmed although these variables may be considered to be amongst the determinants of the credit riskiness of a country. The relation was even loose for the variable which is specified as the balance of payment as a percentage of GDP. Amongst the global financial variables, the most influential are US equity indices as represented by S&P 500 index with a high degree of negative correlation and EMBI with a high degree of positive correlation. Another impressive finding is that the difference between the spreads of US corporate with AAA and A rating and also that of BBB and B ratings has negative and relatively high correlations. Notably, the correlation between the monthly changes in cds spreads and VIX index is also positive and high. The financial market related variables and their relationship with cds spreads reveals the fact that the risk appetite in the global financial market affects the credit risk perception and consequently the cds spreads regardless of the employed indicator of the risk appetite. But, the portfolio flows do not have significant relation with cds spreads, may be steaming from their probable lagging occurrences. In fact, the regression analysis produced supportive results to the above mentioned determinations. Specifically, it is revealed that individual country economic situation has significant effects on cds spreads except Greece who experienced considerable turmoil in its economic and financial position. More specifically it is seen that except Greece, the local variables explains more than 75 percent of the cds spread level and this ratio increases to more than 80% when four emerging market countries are referred. Adding global financial variables into the system not only increased the predictive capability of the model but also increased the significance of the contributions of the local variables more significant so making the overall model more predictive. 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Appendix Russia Brazil Turkey Korea Greece Spain Table 1 Descriptive Statistics for Credit Default Swap Spreads Mean Standard Minimum Median Maximum Deviation 184,04 182,54 43 137,16 1.001,01 162,33 85,99 62,7 127,56 446,40 227,07 93,88 132 195,85 605,82 102,20 94,21 14,5 93,32 450 1.500,586 3.611,67 4,7 104,5 14.904,36 103,72 117,73 1,05 61,08 449,51 17 N 86 86 86 86 86 86 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Table 2 Correlation Matrix of Monthly Changes in Sovereign Credit Default Swap Spreads of the Selected Countries Russia Brazil Russia 1,0000 0,8531 Brazil Turkey Korea Greece 1,0000 Turkey 0,8254 0,8106 1,0000 Korea 0,7846 0,6917 0,7750 1,0000 Greece 0,3639 0,3026 0,3044 0,3801 1,0000 Spain 0,3040 0,2844 0,2734 0,3294 0,3554 Spain 1,0000 Table 3 Correlation Matrix of Monthly Changes in Sovereign Credit Default Swap Spreads of the Selected Countries Before and After Crisis Brazil Turkey Korea Greece Spain beforecri aftercri beforecri aftercri beforecri aftercri beforecri aftercri beforecri aftercri sis sis sis sis sis sis sis sis sis sis Russi 0,8148 0,8723 0,6498 0,8217 0,7073 0,8817 0,3428 0,3821 0,2091 0,5932 a Brazi 0,8125 0,8437 0,6928 0,8740 0,4461 0,4297 l 0,2971 0,6834 Turk 0,5824 0,8694 0,2944 0,3000 ey 0,1534 0,5403 Kore 0,3706 0,4391 a 0,2200 0,6316 Gree ce 0,3596 0,5900 Table 4 Principal Component Analysis Results of the Correlation Matrix of Monthly cds spread changes Principal Percent Total Component Explained First 0,6192 0,6192 Second 0,1707 0,7899 Third 0,1074 0,8972 Fourth 0,0515 0,9788 Fifth 0,0212 1,0000 Table 5 Correlation Between the Monthly Changes of the Variables and cds Spreads FX Rate FX Reserves External Debt Equity Index Balance of Payment as of Russia 0,3789 0,0666 0,0711 0,7405 - Brazil 0,6526 0,1573 0,0234 Turkey 0,7760 0,0191 Korea 0,6057 0,0284 Greece 0,3267 0,3127 0,0638 0,1662 0,6002 - 0,7644 - -0,635 0,0299 -0,357 - - 18 Spain 0,2071 0,0052 0,3504 General 0,5311 -0,0006 0,2147 0,0768 -0,6018 0,0668 -0,0319 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo GDP 0,0397 0,0264 0,0802 0,0272 0,0483 S&P 500 Index 0,6377 0,4347 0,0162 0,5894 0,4988 0,01 0,6546 0,4084 0,0254 0,2366 -0,114 0,3581 0,1177 0,1123 0,0726 0,0212 0,4922 0,1822 0,1586 0,4883 0,4675 0,4927 0,0656 0,0538 0,1591 0,0508 0,269 -0,5830 0,2487 0,0887 0,4802 0,6157 0,4883 0,0252 0,1973 0,0404 0,1244 0,4223 0,0613 0,5233 0,1804 0,1393 0,2971 0,1285 0,0897 0,5363 0,0811 0,0575 0,5069 0,0027 0,2658 0,1748 0,1471 0,0721 0,2029 0,0008 -0,1052 0,1225 0,0521 0,0199 0,084 0,1433 0,0767 0,1213 0,0128 0,1315 0,0784 0,1499 0,0505 -0,1102 US Corp. Spread AAA-A US Corp. Spread BBB-B CMT-5 years Diff. Diff. 5 years UST Excess Returns EMBI Equity Premium Volatility Premium Term Premium Bond Flow Equity Flow -0,3792 -0,0119 -0,1956 -0,0673 0,4075 -0,0946 0,03073 Table 6 Correlation Between the Monthly Changes of the Variables and cds Spreads Before and After Crisis Russia before crisis S&P 500 Index Brazil after crisis before crisis Turkey after crisis before crisis Korea after crisis before crisis after crisis Greece before crisis after crisis Spain before crisis after crisis -0,4973 -0,6906 -0,5844 -0,5905 -0,6473 -0,6648 -0,5407 -0,7082 -0,4733 -0,4944 -0,3029 -0,6431 Corp, Spread Diff, AAA-A -0,2282 -0,6663 0,0833 -0,7222 0,1359 -0,2484 0,006 -0,3446 0,429 -0,2043 0,4359 -0,1358 0,4693 -0,1658 0,4342 -0,1553 0,1608 -0,162 0,2203 Corp, Spread Diff, BBB-B -0,1926 CMT-5 years -0,3579 -0,2159 -0,037 -0,6918 -0,2545 -0,6899 -0,427 -0,1806 -0,2274 -0,1676 -0,2944 -0,1699 -0,4173 -0,0543 -0,1632 -0,0284 5 years US Treasury 0,2825 -0,2343 0,0797 -0,1809 0,1389 -0,3102 0,414 -0,2142 0,3393 -0,2291 0,2048 -0,2483 Excess Returns EMBI 0,1075 -0,6498 0,0431 -0,6452 -0,1162 -0,6428 -0,0976 -0,6779 -0,0991 -0,383 0,0399 -0,3367 Equity Premium Volatility Premium 0,1626 -0,129 0,0052 -0,1706 0,678 0,4734 0,5566 0,2271 0,009 -0,1302 -0,0024 -0,1009 -0,0796 -0,3222 -0,1195 -0,0817 0,6697 0,487 0,4968 0,5453 0,2541 0,1537 0,1479 0,3824 Term Premium 0,1097 -0,3167 0,1602 -0,2579 0,0399 -0,1536 0,2322 -0,1767 0,2518 -0,3921 0,1551 -0,2468 Bond Flow 0,1432 -0,1594 0,3565 -0,0626 0,2427 -0,2156 0,0845 -0,182 0,0786 -0,1943 -0,1539 -0,2927 Equity Flow -0,1952 0,0902 -0,1596 0,121 -0,1476 0,1264 -0,1914 0,0618 -0,257 -0,0464 -0,1573 -0,0513 19 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Table 7 Regression Analysis Results of Country Specific Variables and cds Spreads of the Selected Sovereigns 1 Russia FX Rate Equity Index FX Reserves External Debt Balance of Payment as % of GDP Adjusted R2 1 -1,25 -11,22 -3,12 5,79 -3,02 Brazil Turkey 5,6 -1,12 -3,76 2,46 -4,45 1,68 -13,74 -1,33 5,48 -1,58 0,7206 0,8121 * 0,7674 Korea Greece 9,15 -1,28 -3,64 4,31 -1,92 -0,94 -7,71 -3,14 -4,57 -2,9 * * * 0,8809 Spain * 0,4701 5,6 -1,12 -3,76 2,46 -4,45 0,7206 t statistics having significance at 95percent confidence level is denoted by *, Table 8 Regression Analysis Results of Country Specific and Global Variables and cds Spreads of the Selected Sovereigns 1 Russia Turkey Korea 6,23 -0,18 4,35 -4,55 6,66 0,05 Greece FX Rate FX Reserves 0,98 -1,02 ExternalDebt 1,18 3,43 5,91 1,51 -7,46 Equity Index -2,15 -1,57 0,09 -1,48 -0,46 -2,69 -0,82 Balance of Payment as of GDP 1,48 S&P 500 Index 0,81 -0,46 * -1,74 Diff, -3,12 0 * -1,45 Diff, -1,32 Corp, Spread AAA-A Corp, Spread BBB-B CMT-5 years 5 years US TreasuryExcessReturns 1 * Brazil * * -2,33 -1,34 * * 1,02 * * 0,63 -0,33 Spain * * -0,05 1,41 0,62 * -2,61 -1,93 -1,48 1,16 1,21 * 0,4 -3,21 -1,45 * 2,2 * -1,03 -3,01 -0,74 * 0,28 -1,31 * -3,43 -0,52 * -3,36 * * 3,29 * 1,89 * 1,59 * -0,74 * -2,36 * 2,64 * -1,05 EMBI -2,79 * -4,92 * -4,21 * -3,59 * 4,15 3,29 * Equity Premium -2,15 * 1,32 * -3,40 * -4,09 * 3,06 -1,03 * Volatility Premium 3,07 * 0,59 * 3,03 0,12 * -1,23 * 0,58 * Term Premium -3,5 2,59 * 1,77 1,12 * -1,34 * -2,17 * Bond Flow 2,43 2,82 -0,07 -0,04 -1,68 -4,41 EquityFlow 1,79 -0,75 -0,02 0,02 0,21 1,09 Constant 3,93 -0,17 3,12 1,34 1,42 -2,73 Adjusted R2 0,9288 0,9118 0,9312 0,9693 0,8672 0,9626 LocalRatio 0,8262 0,7903 0,8721 0,9088 0,54209 0,7486 * t statistics having significance at 95 percent confidence level is denoted by *, 20 * * �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo 21 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1637 Title A name given to the resource Sovereign Credit Risk and Credit Default Swap Spread Reflections Author Author TOPBAS, Neslihan Abstract A summary of the resource. The already experienced turbulence in the global financial system has focused the attentions of the market participants to especially sovereign risk; its major determinants, systematic nature as well as its contagion potential. In this study, the direction of the analysis of the sovereign risk is within the framework of the credit default swap (cds) transactions. The sovereign risk can also be elaborated by using the bond spreads of the sovereign but the latter is also driven by factors other than the sovereign risk such as the interest rate movements, supply conditions, liquidity etc. The already available economical and financial data provides invaluable opportunity to analyze the sovereign risk anticipation of the financial markets as it incorporates the valuation of cds in real crisis times of 2008 and 2009 and 2011-first half of 2012 as well as the before and after economic and financial data of the selected countries namely Brazil, Turkey, Russia, Korea, Greece and Spain. The attitude of the investors towards risk as reflected in the financial market conditions affect the cds spreads of the sovereigns and this creates commonality which can be measured by the correlation between the individual sovereign cds spreads. In order to explain the co-movements in the cds spreads of the selected countries into a smaller number of common factors, principal component analysis was performed and it is seen that the first principal component captures nearly 62 percent and the first three component captures nearly 90 percent of the correlation matrix In this Study, in order to capture the relationships between the cds spreads and the country-specific and the global financial and economic factors, regression analysis has been performed. The country specific factors are determined as foreign exchange rate, foreign currency reserves, local stock market returns, external debt, and current account balance as a percentage of gross domestic products. The global financial and economic factors added to the model as independent variables are indexes about US Stock Market Return, US Treasury yields, US corporate yields and Emerging market yields, as well as indicators of equity, term and volatility premium and bond and equity flows. The relationship between the global financial variables and cds spreads reveals the fact that the risk appetite in the global financial market affects the credit risk perception and consequently the cds spreads regardless of the employed indicator of the risk appetite. Specifically, it is also determined that domestic economic situation has significant effects on cds spreads (excluding Greece who experienced considerable turmoil in its economic and financial position), the local variables explain more than 75 percent of the cds spread level and this ratio increases to more than 80 percent when four emerging market countries are referred. Keywords: Credit Default Swaps, Sovereign Risk, Global Financial Indicators, Risk Appetite, Financial Crisis. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 978-9958-834-23-3 https://omeka.ibu.edu.ba/files/original/446d1c1a0f56a63d209769c2d919c272.pdf 3a1932e0227a9e409c9064041adb467c PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Dynamic Relationships between Stock Market Capitalization Rate and Interest Rate in Turkey Cengiz Toraman Gaziantep University, Gaziantep, Türkiye cengiztoraman2004@yahoo.com Çağatay Başarır Balıkesir University, Balıkesir, Türkiye cagataybasarir@gmail.com This paper investigates the long run and short-term relationships between stock market capitalization rate and interest rates in Turkey over the period 1998-2012. Prior to conducting the analysis in a time series, in order to test the stability of the series, a unit root test was initially applied. It is determined that both stock market capitalization rate and interest rate series are not stationary. Long-run relationship is tested by Johansen Cointegration tests and casual relationship is tested by Granger Causality tests. According to the results of the study, there is long-run relationship between stock market capitalization rate and interest rates while there is not causal relationship between stock market capitalization rate and interest rates in short term. Keywords: Stock Market Capitalization Rate, Interest Rates, Cointegration, Vector Error Correction Model (VECM), Causality. 78 � https://omeka.ibu.edu.ba/files/original/d31ccec2d7192e25a7989e2818d84e8a.docx acb4a3066460e1f0cfbfc0a77734b396 https://omeka.ibu.edu.ba/files/original/6b75806ff277700af83fd72291a72890.pdf eb6638216ddf640b1b93e81f4b7560d5 PDF Text Text International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo The DynamicRelationshipsbetween Stock MarketCapitalization Rate and Interest Rate in Turkey CengizToraman Gaziantep University, Gaziantep, Türkiye cengiztoraman2004@yahoo.com ÇağatayBaşarır Balıkesir University, Balıkesir, Türkiye cagataybasarir@gmail.com Abstract This paper investigates the long term and short term relationships between stock market capitalization rate and interest rates in Turkey over the period 1998-2012. Prior to conducting the analysis in time series, in order to test the stability of the series, a unit root test was initially applied. It is determined that both stock market capitalization rate and interest rate series are not stationary. Long-term relationship is tested by Johansen Cointegration tests and casual relationship is tested by Granger Causality tests. According to the results of the study, there is long term relationship between stock market capitalization rate and interest rates while there is not causal relationship between stock market capitalization rate and interest rates in short term. Keywords: Stock Market Capitalization Rate, Interest rates, Cointegration, Vector error, Correction model (VECM), Causality. Introduction Two critical factors of economic growth are stock exchange and interest rate. The effects of interest rate on stock exchange ensure important implications for monitory policy towards financial markets. The relationship between stock market capitalization rate (SMCR) and interest rate have preoccupied the minds of economists since they both play important roles in influencing a country’s economic development (Aydemir and Demirhan, 2009). Theoretically, interest rates have negative impact on stock market performance. An increase in interest rates would avoid investors making high risk stock market investments comparing to low risk interest bearing security investments such as fixed deposits, savings certificates, treasury bills etc (French et al., 1987). In other words, demand for high risk stock market investments would fall if the interest rates are high. As a result, fall in demand for shares would eventually reduce its prices. In contrast, lower interest rate would cause opposite effects such as higher demand for stock investment and increase of share prices. On the other hand, Central Banks usually use interest rates as a tool to dominate inflation in a country. If Central Bank changes interest rates, it would indirectly affect the stock market performance. It eventually would have an impact on overall economic development of the country. Thus, determination of ideal interest rate is a very important policy decision that a country has to consider regularly (Pallegedara, 2012). 127 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Objective of this study is to investigate the long term and short term relationships between SMCR and interest rates. In the first section of the study, aliterature review is made in order to introduce the variables and the models appliedfor different countries. In the second section, data set and variables of the model areexplained. In the third section, a VAR (Vector Autoregression) model is used toexplain the relationship between interest rates and SMCR. The last section of the study evaluates the results of the model and concludes the paper. Literature Review The relationship between the stock market and macroeconomic factors has been a key study concern in the literature. For instance, the relationship between inflation and stock market returns was investigated by Fama (1981). In his study, it is argued that expected inflation is negatively correlated with anticipated real activity, which in turn is positively related to returns on the stock market. A negative correlation between stock market returns and expected inflation was introduced. Conversely, the influence of the long term interest rate on stock prices stems directly from the present value model through the influence of the long term interest rate on the discount rate. Zhou (1996) analyzed the relationship between interest rates and stock prices with a regression analysis. He found that over the long term, interest rates have a significant effect on stock returns. In addition, his results point out that long term interest rates explain a major part of variation in price-dividend ratios and bring up that the high volatility of the stock market is related to the high volatility of long term bond yields and may be accounted for by changing forecasts of discount rates. Maysami and Koh (2000) used a VECM model using monthly data between 1988-2003 to examine the long term equilibrium relationships between selected macroeconomic variables and stock indices of Singapore, Japan and the United States. They found that changes in Singapore’s stock market levels cause a cointegration relationship with changes in price levels, money supply, short and long term interest rates, and exchange rate except industrial production and trade. And also they detected that Singapore stock market is significantly and positively cointegrated with stock markets of Japan and the United States. Hondroyiannis and Papapetrou (2001) investigated the dynamic relationships between the real stock returns, oil prices, and economic activity. They performed a VAR model using monthly data between 1984:1–1999:9. They found that stock prices do not lead to changes in real economic activity but the macroeconomic activity and foreign stock market changes partially explained Greek stock price movements. They also found that oil price changes explain Greek stock price movements and have a negative impact on economic activity. Arango, Gonzales and Posada (2002) exhibited some evidence of the nonlinear and inverse relationship between the share prices on the Bogota stock market and the interest rate. They used daily data from January 1994 up to February 2000. They attained that their model captured the stylized fact on this market of high dependence of returns in short periods of time. Simpson and Evans (2003) analyzed the dynamic interactions and long term relationships between banks share returns and interest rates with a VAR model including Granger Causality and cointegration analysis. They concluded that there is no long term 128 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo relationship between bank shares returns, bank share returns and exchange returns. However, a causality from bank share returns and to exchange rates and interest rates. Gan et al. (2006) examined the relationship between the New Zealand Stock Index and certain macroeconomic variables between 1990- 2003. They used monthly data to perform the cointegration tests. They found that the New Zealand Stock Index is consistently determined by the interest rate, money supply and real GDP but no proof could be found whether the New Zealand Stock Index is a leading indicator for changes in macroeconomic variables. Kurihara (2006) analyzed the relationships between Japan stock index and macroeconomic factors with using daily data Japan among March 2001 and September 2005. His study included various variables such as Japan stock index prices, USA stock index prices, Yen/USD exchange rates, Japan interest rates. As a result, he found that interest rates have no effect on Japan stock prices but, exchange rates and USA stock prices have effects on Japan stock prices. Ologunde et al. (2006) employed a time series analysis to examine the effect of interest rate on some certain variables such as SMCR and government development stock rate between 1981-2000 years. They used the ordinary least-square (OLS) regression method and used yearly data. They found that interest rates have a positive influence on SMCR and a negative influence on government development stock rate. They also found that government development stock rate has a negative influence on SMCR. Mahmudul and Gazi (2009) investigated the relationship between interest rate and stock price for 15 developed and developing countries including Australia, Bangladesh, Canada, Chile, Colombia, Germany, Italy, Jamaica, Japan, Malaysia, Mexico, Philippine, S. Africa, Spain, and Venezuela. They used monthly data from 1988 to 2003. They found that interest rates have a significant and negative relationship with share prices for most of the countries. Only six countries -Malaysia, Japan, Bangladesh, Colombia, Italy, and S. Africa are found that changes of interest rates have a significant and negative relationship with changes of share price. Büyükşalvarcı (2010) analyzed the effects of certain macroeconomic variables on share index by arbitrage pricing model. The model contains seven macroeconomic variables (consumer price index, money market interest rates, industrial production index, gold prices, oil prices, exchange rates, money supply) and Istanbul Stock Exchange 100 Index returns. The dynamics between the seven variables and Istanbul Stock Exchange 100 Index returns are introduced by a multiple regression method. As a conclusion, interest rates, industrial production index, oil prices and exchange rates have negative effects on Istanbul Stock Exchange 100 Index returns, but money supply has a positive effect on Istanbul Stock Exchange 100 Index returns. Inflation rate and gold prices have no significant effect on Istanbul Stock Exchange 100 Index returns. 4. Methodology In this section of the study, the relationships between SMCR and interest rates in Turkey over the period 1998-2012 is analyzed using time series methods of co-integration and Granger Causality. For that purpose, data set will be defined first, and then time series properties of the series will be tested. 129 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo 4.1. Data Description In the study, an empirical analysis was made to detect the relationships between the ISE SMCR and interest rate with a VAR model. For this purpose, quarterly data between 1998:Q1 and 2012:Q3 periods were included. Market Capitalization data is obtained from the website of ISE or at present name Borsaİstanbul. The SMCR is defined as market capitalization data divided by GDP. Data for the interest rate was retrieved from the website of the TCMB (Central Bank of Turkey). Data set and definitions can be seen in Table 1. Table 1: Data Set Variable dMSC dintr Definition SMCR Interest rate Ratio of stock market capitalization to GDP 2 to 14 days weighted average interest rate 4.2. Methodology and Empirical Results Initially we graph the series, it is seen that there is no stationarity for both of the series. If the series are not stationary in level, variance and covariance of the series are not fixed in the research period. Graph 1:Variables Volatility 140 120 100 80 60 40 20 0 98 99 00 01 02 03 04 MCR 05 06 07 08 09 10 11 12 REPO After an observational look, the stationary of each variable were tested by unit root tests to determine their level of stationarity. Stationary variables could be used in the model. Then, a VAR model is estimated, granger causality, impulse- response functions and variance decomposition were tested in order to emphasize the dynamic properties of the system. 4.2.1. Unit Root Test Stationarity of the time series is a salient pre-condition in future estimations. That is related to the fact that if the analysis is conducted with non-stationary time series, spurious regression problem occurs. In such a case, series with no actual interrelationship may seem as if they are interrelated (Özata and Esen, 2010). In this study stationarity of the variables 130 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo are tested by unit root tests of Augmented Dickey-Fuller (ADF), Philips-Peron (PP) and KPSS. None of the series is found to be stationary as a result of ADF, PP and KPSS test results. All of the series become stationary when their first differences are taken. Therefore, all of the series are first-order integrated I (1). As a consequence, differenced series are used in the analysis. Results of the unit root tests are presented in Table 2. Table 2: Unit root test results dMCR dINT TEST ADF(c) -7.610268 -5.406468 ADF(t) -7.539280 -5.548979 PP (c) -8.225866 -14.92046 PP(t) -8.173137 -18.86397 KPSS(c) -0.099097 0.500000 KPSS(t) 0.105651 0.500000 *c with constant term but no trend. *t with constant term and trend. 4.2.2. Cointegration Test Unit root tests revealed that the series are stationary at first level, so they are integrated. But, even the series are integrated; it does not guarantee that they behave in the same direction in the long term. Long term relationships between two non-stationary series can be detected by cointegration analysis. There are certain tests to perform cointegration analysis. In this study, long term relationship between the cointegrated series is tested by a Johansen cointegration test (1988). Johansen cointegration test provide us to determine the number of cointegration relationship and the parameters of this relationship (Özata and Esen, 2010). Prior to the implementation of the Johansen Cointegration Test, the unrestricted Vector Autoregression (VAR) model was applied on the series to determine lagged ratios. Lagged ratio is taken as 2 according to the SC, HQ and LR criteria. The Johansen Cointegration test results, the Trace Test and the Maximum Eigenvalue test results are illustrated in Table 3 and Table 4. Hypothesized No. of CE(s) None (r=0) At most 1 (r≤1) Table 3: Trace Test Results Eigenvalue Trace %5 Critic Statistics Value Probability 0.430888 49.95243 15.49471 0.0000 0.291460 18.95016 3.841466 0.0000 131 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Table 4: Maximum Eigenvalue Test Results Hypothesized Eigenvalue Maximum %5 Critic Probability No. of CE(s) Eigenvalue Value Statistics None (r=0) At most 1 (r≤1) 0.430888 31.00227 14.26460 0.0001 0.291460 18.95016 3.841466 0.0000 Trace test and Maximum Eigenvalue test results shows that we can reject the null hypothesis: Ho: There is no cointegration, As a conclusion, we can state that there is a long term relationship between the variables. Engle and Granger (1987) emphasized that an error correction model can be set when there is long term relationship between the variables. In other words, a bias of the long term equilibrium can be corrected. Correction of the bias in the regression can be made by an error correction term (ECT). Therefore, Granger causality of the model should be based on an error correction model (VECM). 4.2.3 Vector Error Correction Model The main advantage of the error correction model is that it enables to benefit the sub information of the series in the short term and long term. It also provides to eliminate the spurious regression (Sevüktekin and Nargeleçekenler, 2010). Therefore, for long term relationship, a dynamic specification of error correction (VECM) model can be defined as: k k Jk1 Jk1 Y1t   0   1 j Y1t  j   2 j Y2t  j  1 ECTt 1   1t (1) Y2t   0   1 j Y1t  j    2 j Y2t  j  2 ECTt 1   2t (2) J 1 J 1 ECTt-1 is the lagged value of error correction model. Coefficients λ1and λ2show the equilibrium ratio. When cointegration is considered,  1 j from the  equation 1 and 1 j from the equation are tested whether they are significant in group by Ftest and also coefficients of the error correction model λ1and λ2 are tested whether significant or not (Özata and Esen, 2010). 4.2.3. Granger Causality Test Results of the Granger Causality test using vector error correction model is presented in Table 5. 132 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Table 5: Granger Causality Test Results Hypothesis m=2 P Value Test Statistics SMCR does not Granger Cause interest rate Interest rate does not Granger cause SMCR 0.08698 0.9168 0.08871 0.9153 The Granger Causality test results pointed at an inelastic relationship between SMCR and interest rate. Therefore, changes in the SMCR are not sensitive to changes in interest rates. In the contrary case, changes in the interest rates are not sensitive to changes in the SMCR. 4.2.4. Impulse-Response Functions After testing causality, responses of the indices to an impulse in crude oil prices are analyzed. Impulse response functions reveal the effects of an unexpected shock given to a variable on the future values of its own and also other variables. As a result of impulse response functions, dynamic relationships can be observed among the variables and also the adjustment process can be detected. Graph 2: Graphs of Impulse-Response Functions Response of DREPO to Cholesky One S.D. DMCR Innovation Response of DMCR to Cholesky One S.D. DREPO Innovation 1.5 .35 1.0 .30 0.5 .25 0.0 .20 -0.5 .15 -1.0 .10 -1.5 .05 -2.0 .00 -2.5 -.05 2 4 6 8 10 12 14 16 18 20 22 24 2 4 6 8 10 12 14 16 18 20 According to the impulse response functions, an unexpected change of SMCR has an impact on interest rate during 16 periods and afterwards the effects disappear. And also an unexpected change of interest rate has an impact on SMCR during 17 periods. These results support the long term relationship between the two determinants. 4.2.5. Variance Decomposition Variance decomposition indicates the amount of information each variable contributes to the other variables in a vector autoregression (VAR) model (Lütkepohl, 2007). In other words, variance decomposition determines how much of the forecast error variance of each variable can be explained by exogenous shocks to the other variables. Accordingly, the results of the variance decomposition of our variables are as given in Table 6 and Table 7. 133 22 24 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Table 6: Variance Decompositions of SMCR Period DMCR DINTR 1 100 0 6 97.36711 2.632890 12 97.87258 2.127417 Variance decomposition of SMCR is shown in table 6. As a result of the variance decomposition tests, 100 % of the forecasting error variance of SMCR is explained by itself in short term. In midterm 2.633 % forecasting error of the SMCR can be explained by interest rate, 97.367 % is explained by itself and in the long term 2.127 of SMCR can be explained by interest rate and 97.872 % is explained itself. Table 7: Variance Decompositions of Interest Rate Period DMCR DINTR 1 3.452237 96.54776 6 7.815995 92.18401 12 9.433681 90.56632 Variance decomposition of interest rate is shown in table 7. According to table 7, in short term 3.452 % of the forecasting error variance of interest rate is explained by SMCR and 96.547 % of forecasting error variance is explained by itself. In midterm 7.815 % of forecasting error variance of interest rate is explained by SMCR and 92.184 is explained by itself. At the last, in the long term, 9.433 % of forecasting error variance of interest rate is explained by SMCR and 90.566 is explained by itself. As a conclusion; results of the variance decompositions of SMCR show that there is no short term, midterm and long term significant relationship between SMCR and interest rate. But variance decomposition of interest rate result is consistent with the results of the cointegration analysis. If the time becomes longer, the relationships become more visible. 5. Summary and Concluding Remarks This study examined the relationship of interest rates on the SMCR in ISE over the period 1998-2012 with VAR model. Time series of the data are found non-stationary so that the long term relationships between the two variables are tested with cointegration analysis. According the results of the model, there is a long term relationship between the SMCR and interest rate but contrarily there is no granger causality relationship. The results showed that, crisis in the stock market are precluded with the control of interest rate in the long term. 134 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo The findings of the Variance Decomposition tests indicate that 2.127 % of forecasting error variance of the SMCR can be explained by interest rate, 97.87 % is explained by itself; likewise 90.56 % of interest rate is determined by itself and 9.43 % is explained by the SMCR. The cointegration relationship between the interest rates and SMCR is inconsistent with the inferences of the efficient market hypothesis. Mainly, stock market can be estimated under the efficient market hypothesis. If the economic policies implemented by the policy makers do not influence the stock market as planned, they have to revise these economy policies. If the policy makers try to cure the economic problems like high inflation or unemployment, they have to consider the extensive effects of these policies because adverse effects can be observed in stock markets. As a result, capital formation may decrease and economy may disrupt. REFERENCES Arango, L., Gonzalez, A.& Posada, C. (2002). Returns and interest rate: A nonlinear relationship in the Bogota stock market. Applied Financial Economics, 12(11), 835–842. Aydemir, O. &Demirhan, E., (2009).The relationship between stock Prices and exchange rates evidence from Turkey.International Research Journal of Finance and Economics, 23, 208-215. Büyükşalvarcı, A. (2010).The effects of macroeconomics variables on stock returns: Evidence from Turkey. European Journal on Social Science.14(3), 404–416. Engle, R.F. & Granger, Cwj. (1987).Cointegration and error correction: Representation, estimation and testing. Econometrica, 55, 251–276. Fama, E. F.(1981). Stock Return, real activity, inflation, and money. American Economic Review, 71(4), 545–65. French KR., Schwert GW.&Stambaugh RE (1987). Expected stock returns and volatility. Journal of Finance Economics. 19, 3–29. Gan,C., Lee, M., Yong, H.H.A., & Zhang, J. (2006). Macroeconomic variables and stock market interactions: New Zealand evidence. Investment Management and Financial Innovations,3(4), 89–101. Hondroyiannis, G.&Papapetrou, E. (2001). Stock market performance and macroeconomic experience in Greece.Greek Economic Review, 21 (2), 65–84. Johansen, S.(1988). Statistical analysis of cointegration vectors.Journal of Economic Dynamics and Control, 12, 231–254. Kurihara, Y. (2006), The relationship between exchange rate and stock prices during the quantitative easing policy in Japan, International Journal of Business, 11(4), 375– 386. 135 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Lütkepohl, H. (2007). Econometric Analysis with Vector Autoregressive Models, European University Institute Working Paper ECO, 43. Mahmudul, A.&Gazi Salah, U. (2009). The relationship between interest rate and stock price: Empirical evidence from developed and developing countries. International Journal Of Business And Management. 4(3), 43–51. Maysami, R.C.&Koh, T.S.(2000). A vector error correction model of the Singapore stock market.International Review of Economics and Finance, 9, 79–96. Ologunde, A.O., Elumilade, D.O.&Asaolu, T.O. (2006). Stock market capitalization and interest rate in Nigeria: A Time Series Analysis.International Research Journal of Finance and Economics, 4, 154–167. Özata, E. &Esen, E. (2010). Reel ücretlerileistihdamarasındakiilişkininekonometrikanalizi. Journal OfAnadolu University Social Sciences. 10, 55–70. Pallegedara, A. (2012). Dynamic relationships between stock market performance and short term interest rate empirical evidence from Sri Lanka. University Library of Munich, MPRA Paper 40773, Germany. Sevüktekin, M.&Nargelecekenler, M. (2010). Eviewsuygulamalı. Ankara, Nobel Pres. Ekonometrikzamanserilerianalizi: Simpson, J.L. & Evans, J.P. (2003).Banking stock returns and their relationship to interest rates and exchange rates: Australian Evidence.University of Wollongong in Dubai Working Paper, 5, 1–35. Zhou, C., (1996). Stock market fluctuations and the term structure.Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series, 96/03. 136 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1556 Title A name given to the resource The Dynamic Relationships between Stock Market Capitalization Rate and Interest Rate in Turkey Author Author TORAMAN, Cengiz BASARIR, Cagatay Abstract A summary of the resource. This paper investigates the long run and short-term relationships between stock market capitalization rate and interest rates in Turkey over the period 1998-2012. Prior to conducting the analysis in a time series, in order to test the stability of the series, a unit root test was initially applied. It is determined that both stock market capitalization rate and interest rate series are not stationary. Long-run relationship is tested by Johansen Cointegration tests and casual relationship is tested by Granger Causality tests. According to the results of the study, there is long-run relationship between stock market capitalization rate and interest rates while there is not causal relationship between stock market capitalization rate and interest rates in short term. Keywords: Stock Market Capitalization Rate, Interest Rates, Cointegration, Vector Error Correction Model (VECM), Causality. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 978-9958-834-23-3 https://omeka.ibu.edu.ba/files/original/a7d3dc9cb85fdf39a945a4b49e4af7d3.pdf 4d6422a2003e38aaeb79aeb1589844b9 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Effects of Capital Structure Decisions on Firm Performance: Evidence from Turkey Cengiz Toraman University of Gaziantep, Gaziantep, Turkey ctoraman@gantep.edu.tr Yunus Kılıç University of Gaziantep, Gaziantep, Turkey ykilic@gantep.edu.tr Şükriye Gül Reis University of Gaziantep, Gaziantep, Turkey greis@gantep.edu.tr The capital structure decisions of firms have a crucial importance on firms’ financial performance. The capital structure concept is generally described as the combination of debt and equity that make the total capital of firms. The selection of capital components and use of these components play an important role during the determining of financial strategies. Therefore, it is difficult to choose ideal proportion of debt and equity. A good equilibrium of debt and equity can affect the financial performance of company and the value of company. The profitability of an enterprise is directly affected by capital structure decision. Capital structure is the one of the most puzzling issues on corporate finance literature. Beginning with the Modigliani and Miller’s (1958) research, there have been a number of studies which have investigated the relationship between capital structure and financial performance. Modigliani and Miller suggest that the value of a firm is independent from its capital structure in an efficient market when there is no tax factor. Thereby optimal capital structure cannot be reached according to Modigliani and Miller’s approaches. This approach has been taken a number of interests from scholars. The research came in for criticism since capital markets are quite different from efficient market which Modigliani and Miller’s study based on. The aim of this study is to investigate the effects of capital structure decisions on firms’ profitability in manufacturing sector in Turkey. The data used in this research corresponds to the financial statements of manufacturing companies collected between 2002 and 2011. The regression analysis was employed by using financial ratios obtained from financial statements of firms within the scope of analysis. As a result, the capital structure components which have influence on firm performance have been determined and general assessment has been made. Keywords: Capital Structure, Firm Performance, Optimal Capital Structure, Profitability, Financial Leverage, Regression Analysis. 79 � https://omeka.ibu.edu.ba/files/original/878d82811b82fb5b98ee3645674f555b.docx 2d2f0c94eb38665ac9f6e6704f1ecc58 https://omeka.ibu.edu.ba/files/original/4f0491168b7c8b42f5fc3cdae8e7bb6b.pdf c26ac558abfd55c3d26d8b65224bcfee Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1557 Title A name given to the resource The Effects of Capital Structure Decisions on Firm Performance: Evidence from Turkey Author Author TORAMAN, Cengiz KILIC, Yunus GUL REIS, Sukriye Abstract A summary of the resource. The capital structure decisions of firms have a crucial importance on firms’ financial performance. The capital structure concept is generally described as the combination of debt and equity that make the total capital of firms. The selection of capital components and use of these components play an important role during the determining of financial strategies. Therefore, it is difficult to choose ideal proportion of debt and equity. A good equilibrium of debt and equity can affect the financial performance of company and the value of company. The profitability of an enterprise is directly affected by capital structure decision. Capital structure is the one of the most puzzling issues on corporate finance literature. Beginning with the Modigliani and Miller’s (1958) research, there have been a number of studies which have investigated the relationship between capital structure and financial performance. Modigliani and Miller suggest that the value of a firm is independent from its capital structure in an efficient market when there is no tax factor. Thereby optimal capital structure cannot be reached according to Modigliani and Miller’s approaches. This approach has been taken a number of interests from scholars. The research came in for criticism since capital markets are quite different from efficient market which Modigliani and Miller’s study based on. The aim of this study is to investigate the effects of capital structure decisions on firms’ profitability in manufacturing sector in Turkey. The data used in this research corresponds to the financial statements of manufacturing companies collected between 2002 and 2011. The regression analysis was employed by using financial ratios obtained from financial statements of firms within the scope of analysis. As a result, the capital structure components which have influence on firm performance have been determined and general assessment has been made. Keywords: Capital Structure, Firm Performance, Optimal Capital Structure, Profitability, Financial Leverage, Regression Analysis. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 978-9958-834-23-3 https://omeka.ibu.edu.ba/files/original/7b6d26b5efd3af114c6de561f01dafa6.pdf c1927ba1f1316f76601ee80d7ec9e21d PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Effects of the global economic crisis and public spending on income distribution in Bosnia and Herzegovina Naida Trkid-Izmirlija University of Sarajevo, Sarajevo, Bosnia and Herzegovina n_trkic@bih.net.ba Adnan Efendid University of Sarajevo, Sarajevo, Bosnia and Herzegovina adnan.efendic@efsa.unsa.ba This research focuses on the relationship between public spending and income distribution in Bosnia and Herzegovina (B&H). In our empirical strategy we rely on a unique survey data used to establish a proxy for inequality over the observed period 2000-2010. In addition, we investigate the consequences of contemporary global economic and financial crisis on income distribution. We find indications that the global economic crisis, with its B&H onset in 2009-2010, has increased income inequality in B&H. Our findings also imply that increased public spending and improvement in the quality of institutions in B&H were supportive in reducing income inequality over the observed period. After examining several institutional indicators, we identify a particular importance of political stability in B&H as a determinant of income distribution and inequality. Disaggregated analysis of public spending by functional and economic categories revealed that higher expenditures for social protection and capital spending are associated with lower income inequality. Contrary, higher expenditures for education are linked with higher income inequality. Keywords: Inequality, Income Distribution, Southeast Europe, Global Economic Crisis, Public Spending, Education Expenditures, Health Expenditures, Social Expenditures. 221 � https://omeka.ibu.edu.ba/files/original/4fcfd898c7135c85a0dcfaa8c9226194.docx 50de57e4d2605954bc0af10cf0dfa5fe https://omeka.ibu.edu.ba/files/original/d84300a13a6e55e9e5d15f0633b5c632.pdf 8329d2394c36468f56296a64538f0ec9 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1604 Title A name given to the resource Effects of the global economic crisis and public spending on income distribution in Bosnia and Herzegovina Author Author TRKIĆ-IZMIRLIJA, Naida EFENDIĆ, Adnan Abstract A summary of the resource. This research focuses on the relationship between public spending and income distribution in Bosnia and Herzegovina (B&H). In our empirical strategy we rely on a unique survey data used to establish a proxy for inequality over the observed period 2000-2010. In addition, we investigate the consequences of contemporary global economic and financial crisis on income distribution. We find indications that the global economic crisis, with its B&H onset in 2009-2010, has increased income inequality in B&H. Our findings also imply that increased public spending and improvement in the quality of institutions in B&H were supportive in reducing income inequality over the observed period. After examining several institutional indicators, we identify a particular importance of political stability in B&H as a determinant of income distribution and inequality. Disaggregated analysis of public spending by functional and economic categories revealed that higher expenditures for social protection and capital spending are associated with lower income inequality. Contrary, higher expenditures for education are linked with higher income inequality. Keywords: Inequality, Income Distribution, Southeast Europe, Global Economic Crisis, Public Spending, Education Expenditures, Health Expenditures, Social Expenditures. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 978-9958-834-23-3 https://omeka.ibu.edu.ba/files/original/04df7e1ca1f4b878d6a45e8d92237bce.pdf 7d86d998a0cdb1118873fbc86fbb396a PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Ethical Issues of the Child as Consumer Edina Trnka Zeljkovid Islamic Parental Association “ISRA”, Sarajevo, Bosnia and Herzegovina edinatrnka@hotmail.com This paper, entitled as "Ethical issues of the child as consumer" deals with the major issues related to child as consumer and children's marketing. Issues related to child as consumer are: what children buy how parents affect children's consumer behavior, how children affect purchase decision of their families and how relationship with peers affects children's purchase decisions? Issues related to children's marketing are what the effect of marketing on children’s behavior is and how children process advertising messages. Special emphasis is on techniques that marketers use when communicating with this group. The most important techniques are those that are used on television and internet. Emphasis is also on ethical issues of the marketing which has children as its target group. Those ethical issues are from critics of marketing that it misleads children to claims that it causes obesity and unhappiness. Main ideas of work are that children are an important market for the producers and they have a great market potential. Children are primary market for some products, but they are also future market for products that they will use in future and influential market on their families. They are group that is particularly vulnerable to the messages that are sent to them. Children under age of 8 can't understand intention of advertiser which makes them easy to mislead. Literature of significant authors in this field is used, such as: McNeal, Gunter, Furnham, Calvert and others. Attention was also on expert articles from this field. Content analysis of advertising messages aimed at children in Bosnia and Herzegovina led to conclusion that those messages are unethical in a large percentage. Unethical messages are mostly in contrast of moral and social standards and they bring up false claims. Besides that, in advertising messages for product that are intended for parents children are used to encourage them on purchase. The study of regulation of marketing to children in developed markets and in Bosnia and Herzegovina proved that regulations of children's marketing in Bosnia and Herzegovina isn't regulated enough by standards and norms. Bosnian regulations are inconsistent with international standards that regulate this field globally. Keywords: Children’s Marketing, Advertising Messages Aimed At Children, Criticism Of Marketing To Children, Regulation Of Marketing To Children. 90 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1521 Title A name given to the resource Ethical Issues of the Child as Consumer Author Author TRNKA ŽELJKOVIĆ, Edina Abstract A summary of the resource. This paper, entitled as "Ethical issues of the child as consumer" deals with the major issues related to child as consumer and children's marketing. Issues related to child as consumer are: what children buy how parents affect children's consumer behavior, how children affect purchase decision of their families and how relationship with peers affects children's purchase decisions? Issues related to children's marketing are what the effect of marketing on children’s behavior is and how children process advertising messages. Special emphasis is on techniques that marketers use when communicating with this group. The most important techniques are those that are used on television and internet. Emphasis is also on ethical issues of the marketing which has children as its target group. Those ethical issues are from critics of marketing that it misleads children to claims that it causes obesity and unhappiness. Main ideas of work are that children are an important market for the producers and they have a great market potential. Children are primary market for some products, but they are also future market for products that they will use in future and influential market on their families. They are group that is particularly vulnerable to the messages that are sent to them. Children under age of 8 can't understand intention of advertiser which makes them easy to mislead. Literature of significant authors in this field is used, such as: McNeal, Gunter, Furnham, Calvert and others. Attention was also on expert articles from this field. Content analysis of advertising messages aimed at children in Bosnia and Herzegovina led to conclusion that those messages are unethical in a large percentage. Unethical messages are mostly in contrast of moral and social standards and they bring up false claims. Besides that, in advertising messages for product that are intended for parents children are used to encourage them on purchase. The study of regulation of marketing to children in developed markets and in Bosnia and Herzegovina proved that regulations of children's marketing in Bosnia and Herzegovina isn't regulated enough by standards and norms. Bosnian regulations are inconsistent with international standards that regulate this field globally. Keywords: Children’s Marketing, Advertising Messages Aimed At Children, Criticism Of Marketing To Children, Regulation Of Marketing To Children. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2303-4564 https://omeka.ibu.edu.ba/files/original/0358794b713817f694bbffde934fc402.pdf 19984ad179d2a1d801bdaa78540d0079 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Implementation of MIS in Banks of Tuzla Canton Danel Trumic International Burch University, Sarajevo, Bosnia and Herzegovina danel_tr@hotmail.com Meliha Handzic International Burch University, Sarajevo, Bosnia and Herzegovina mhandzic@ibu.edu.ba Management Information Systems (MIS) are playing an important role in the banking sector. Increasing speed and power of information and communication technologies and their innovative applications enable banks operating in developed economies to gain competitive advantage and enhance their customer satisfaction. The purpose of this study is to investigate the issue in the case of a transitional economy. In particular, a survey study was conducted to audit the implementation of MIS in the banking sector of Canton Tuzla, Bosnia and Herzegovina. The data were collected from the employees who were users of MIS in major banks operating in Canton Tuzla. The collected data were analyzed using descriptive tests. The results revealed some interesting patterns. These findings and their implications are discussed in detail. In the end, some plausible directions are recommended for future research. Keywords: Management Information Systems, Bosnia and Herzegovina, Bank 84 � https://omeka.ibu.edu.ba/files/original/6dfa4d181fd92372112b02a1b0dd1355.docx c4aa2be2b5c6402e975a48560c224879 https://omeka.ibu.edu.ba/files/original/0eedce49f6914bee19a3b8ec132cd1e4.pdf fe59cd128906797bb9cb0585a407d149 PDF Text Text International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo The Implementation of MIS in Banks of Tuzla Canton DanelTrumic International Burch University, Sarajevo, Bosnia and Herzegovina danel_tr@hotmail.com MelihaHandzic International Burch University, Sarajevo, Bosnia and Herzegovina mhandzic@ibu.edu.ba Abstract Information Systems (IS) are playing an important role in the banking sector. Increasing speed and power of information and communication technologies and their innovative applications enable banks operating in developed economies to gain competitive advantage and enhance their customer satisfaction. The purpose of this study was to investigate the role of banking IS in the context of a transitional economy. In particular, a survey study was conducted to audit the implementation of IS in banks operating in Canton Tuzla, Bosnia and Herzegovina. The data were collected from the employees who were users of IS in these banks. The collected data were analysed using descriptive tests. The results revealed some interesting patterns. These findings and their implications are discussed in detail and some plausible directions are recommended for future research. Keywords: Information systems (IS), IS sophistication, IS usage, IS success, banking sector, survey study, Bosnia and Herzegovina Introduction Banksarebecomingincreasinglydependant on informationsystems (IS) fortheirday-todayperformance. IS isplaying a vital role in increasingefficiencyandreducingcost, as well as in differentiation of bankingproductsfromitscompetitors. Increasingspeedandpower of informationandcommunicationtechnologiesandtheirinnovativeapplicationsenablebanksoper ating in developedeconomiestogaincompetitiveadvantageandenhancetheircustomersatisfaction. However, thenewrequirementsforinformation, largeexposuresandstresstestingpresentnewchallengestothefinancialsector. Therefore, banksneedtocontinuoslylook at how theyareaddressingthere IS requirements. The 2011 survey of managementinformationsystemsconductedbytheAssociation of ForeignBanks (2011) reportedslowprogressfromtoomuchdependence on spreadsheetstoincreasedinvestments in businessintelligencetechnology. However, verylittleresearchexiststhatinvestigatesthe role of IS in thebankingsector of thedevelopingandtransitionaleconomies. Recognisingtheimportance of the role that IS plays in thebankingsector, thepurpose of thisstudy is toaddresstheissue in thecontext of BosniaandHerzegovina. Inparticular, thestudyaimstogain an insightintothestate of IS implementation in thebanksoperating in 152 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Tuzla Canton, a region of BosniaandHerzegovina. Canton Tuzla is a homeregion of one of theauthorsandtherefore of specialinterest. LiteratureReview Information systems (IS) are defined as inter-related sets of hardware, software, people, procedures and data components (Turban et al, 1999). The main goal of IS is to collect, manipulate and disseminate information in order to help individuals and collectives to improve their business operation and decision making. The literature classifies IS into different types on the basis of the activities and functions they support (Laudon and Laudon, 2006, 2007). The major types of IS mentioned in the literature include: Transaction Processing Systems; Enterprise Systems that cover Supply Chain Management Systems and Customer Relationship Management Systems, as well as various Functional Information Systems such as Human Resources Management Systems, Accounting, Finance, Marketing Information Systems; Managerial Support Systems that include Management Information Systems, Decision-Support Systems, Executive Support Systems, Knowledge Management and Business Intelligence Systems, There are also special purpose systems like Geographic Information Systems. The role of transaction processing systems is seen in capturing and recoding daily business transactions such as sales, receipts, orders, cash deposits, payroll records etc. Management information systems support operational management by summarising and reporting basic operations using data from the transaction processing systems. Decision support systems focus on solving semi-structured decision problems. Executive support systems are concerned with internal and external data needed for long-term planning. More recently, knowledge management and business intelligence/analytics systems are becoming popular means of support for organisational knowledge development and transfer (Post and Anderson, 2006; Oz, 2009). Enterprise systems comprise of two major subsystems: supply chain management and customer relationship management systems. The first one supports purchasing of raw materials, and manufacturing and assembly activities. The second one manages organisation’s relationships with customers. The major goal is to increase the quality of customer service. Enterprise systems also include various functional systems (eg. human resources, accounting and finance management) that provide support for secondary activities in the value chain. All these types of systems can be found in the banking sector where they support various primary and secondary value chain activities. For example, retail banks use internet and phone banking to provide maximum customer services on loans, accounts, credit cards, insurance, etc. (Pond, 2007). Wholesale banking provides internet solutions for commercial banking, corporate banking, specialised lending services, treasury management etc. (Hoyt, 2012). Customer identification (Rhodes, 2012) systems provide security, employee records (Islam, 2011) monitor the working efficiency of an employee, complaints system gives an opportunity to a customer to complain via a written and online communication (European Investment Bank, 2010; Uppal, 2010). Account opening is simplified (Sinha 2012) and ATM enables easy withdrawal of cash (Hayashi et al, 2006). Electronic banking has been seen as an inevitable aspect of financial services (Harris and Spence, 2012). More recently, mobile banking is being encouraged (Hayashi, n.d.). Electronic clearing service deals with bulk and repeating payment transactions (Reserve 153 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Bank of India, 2011). RTGS (real time gross settlement) service facilitates interbank money transfer (Kaushik, 2012). Finally, e-billing solutions increase convenience and decrease biller’s cost (Radecki and Wenninger, 1999). Research Methodology Descriptive survey was selected as a preferred research method to investigate the level of sophistication, usage and impact of information systems (IS) implemented in major banks operating in Canton Tuzla. This method enabled systematic gathering of quantitative data from a sample of individuals for the purposes of describing the attributes of the larger population of which the individuals were members (Glock, 1967). For the purpose of the current study, IS sophistication was evaluated in terms of the availability and quality of various IS types from the bank employee-user point of view. IS usage was examined in terms of the level of support provided for internal bank activities, as well as bank obligations towards external regulatory bodies. Finally, IS impact was assessed in terms of its perceived effectiveness and user satisfaction. The collection of data was carried out through surveys of employees who were working in different bank departments. A total of 21 employees from 4 different banks participated in the study on a voluntary basis. The survey forms were distributed to respondents personally by one of the researchers. The names of the participating banks and employees are not disclosed in this paper in order to protect their privacy. In responding to the survey questions, the respondents provided basic demographic information (ie. position, education, experience, sex, age, duties). Then they rated various aspects of their bank IS (ie. sophistication, usage, impact) on seven-point Likert scales, with 1 and 7 representing the most negative and positive end-points. They were also asked to provide optional textual comments and/or suggestions. Their responses were encoded and analysed using MS Excel descriptive statistics. In addition, bank websites and documents were used to collect secondary data about the prevailing bank culture and strategy. Results The overall results shown in Table 1 indicate that almost all aspects of the banking IS were positive. These positive assessments were demonstrated by the average scores greater than 4 (out of 7). The only negative assessment was obtained for ERP. Its average score of 3.79 was lesser than 4 (out of 7). Respondents were somewhat undecided with respect to IS Usage for fulfilling their bank obligations towards state. This was demonstrated by the overall mean score equal to 4 (out of 7). The results further show that all average scores were below 7. Such scores point to major weaknesses and obstacles and indicate that there is room for further improvement. The most sophisticated types of IS were electronic banking (6.57) and communication systems (6.43). They were followed by basic banking system (5.90), clearing system (5.76) and RTGS (5.71). Business intelligence systems were fairly good (4.80). In contrast, enterprise resource planning systems were poor (3.79). 154 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo With respect to IS usage, the results indicate that the systems were used mostly for management support (6.06). This was followed by fullfiling obligations towards regulatory bodies (5.35). As mentioned before, respondents were unsure about IS usage for fullfiling obligations towards state. The results for IS impact show that the users of the evaluated bank IS were very satisfied with their systems (6.43) and that these systems were highly effective (6.14) in supporting their work. Table 1: Mean Respondents’ Scores of Various IS Aspects Examined Aspect of Information Systems IS Sophistication: Basic banking system Business intelligence Enterprise resource planning Electronic banking RTGS Clearing system Communication systems IS Usage: Management support Support for obligations towards regulatory bodies Support for obligations towards state IS Impact: System effectiveness User satisfaction Score 5.90 4.80 3.79 6.57 5.71 5.76 6.43 6.06 5.35 4.00 6.14 6.43 Further analysis of collected data was performed to examine any potential differences among four banks with respect to their IS sophistication, IS usage and IS impact. The results of the comparative analysis among banks is presented in Figure 1. 155 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Figure 1: Comparative Analysis of IS Aspects in Four Banks Figure 1 shows clear differences between four banks. One bank (bank 4) has much higher scores than other three banks (bank 1,2,3) for all three IS aspects evaluated. The mean score for IS sophistication of bank 4 (6.90) is higher than those of bank 2,1 and 3 (5.43, 5.33 & 5.14). Similarly, the mean score for IS usage of bank 4 (7.00) is higher than those for bank 3,2 and 1 (5.33, 4.76 & 4.71). Finally, The mean score for IS impact of bank 4 (7.00) is higher than those for other banks 2,3 and 1 (6.29,6.13 & 6.07). Only three respondents from the same bank gave written comments. Two were negative and one positive. One respondent commented that the bank had “poor equipment”, and another one that the bank “needs to improve its information system due to frequent break downs”. In contrast, the third respondent from the same bank claimed that “in our bank, all functions well”. Discussion This study examined the implementation of IS in the banking sector of one specific region (Canton Tuzla) of a national economy in transition (Bosnia and Herzegovina). The study found out that the banks operating in this economy and region: (a) possess sophisticated IS, (b) use IS extensively to support their banking activities; and (c) banking IS have positive impact on business. The study also determined that some banks were more successful than others in implementing IS. With respect to IS sophistication, the overall findings indicate that transaction processing types of systems were highly sophisticated, business intelligence systems were fair, while enterprise resource planning systems were poor. Such findings are consistent with early stages of IS maturity. They suggest the need to better integrate disparate functional systems, as well as front-end and back office systems in order to provide full support along the primary upstream/downstream and supporting activities in the value chain. The findings also suggest that the banks could better use their business intelligence systems to discover valuable patterns from their transaction data. 156 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo The overall findings regarding IS usage indicate that the systems were mainly used for the operational management, and to a lesser extent for fulfilling regulatory obligations and still lesser extent for fulfilling state obligations. This is consistent with the earlier study finding of poor integrated enterprise systems and fair business intelligence systems. Yet, these systems are essential for providing key performance indicators across banking activities. Finally, he study found that the participants were overall satisfied with their IS and perceived them as effective in supporting their daily work. Given that most respondents were employees in positions of tellers, cashiers and bank officers rather than managers, this is not surprising. These employees were prime users of various transaction processing systems that were assessed as highly sophisticated and used to support operational management. However, a comparative analysis of four banks showed that one bank was more successful than other three banks in implementing a successful IS system. Bank 4 was dominant with perfect or near-perfect mean scores on all three aspects of IS (sophistication, usage and impact) that were evaluated. Deeper analysis of this bank revealed that it was a very successful big international bank with very high standards established in every aspect of their operation. In contrast, the other three banks need a lot of catching up. The encouraging finding from one of these banks is that some respondents from this bank recognised the problem they had with poor equipment and frequent system break downs. Conclusions This study made two important contributions to research and practice. For research, the study provided an insight into the state of IS implementation in the context of a transitional economy and at a regional level. The findings revealed notable differences among banks and system types implemented. For practice, the study pointed out major weaknesses and obstacles that need to be overcome by banks in order to provide full support for their banking activities. However, the study is not without limitations. It examined IS implementation from the bank employees’ rather than the bank customers’ perspective. The number of participants was rather small. This may affect its reliability. Data were collected in Bosnia and Herzegovina. The question is whether these results would hold in a different economy and culture. Further research is recommended to overcome these limitations. Future research may replicate and extend the current investigation to other contexts, systems and subjects in order to verify and generalise these findings. Future research is also encouraged to develop new research models and variables aimed at enriching our collective understanding of the successful IS implementation. References Association of Foreign Banks (2011), Management Information Systems: Survey 2011, Cambridge Corporate Management, UK. 157 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Glock, C.Y. (1967) Survey Research in the Social Sciences. Russell Sage Foundation, New York. Kenneth C.Laudon, Jane P.Laudon (2006/2007). Management Information Systems: Managing The Digital Firm (10th. ed.). New Jersey, U.S.A. Pearson Prentice Hall. Efraim Turban, Ephraim McLean, James Wetherbe (1999). Information Technology for Management (2nd. ed.) New York, U.S.A. John Wiley & Sons. Gerald V.Post, David L.Anderson (2006). Management Information Systems: Solving Business Problems with Information Technology (4th. ed. international edition). New York, U.S.A. The McGraw-Hill Companies, Inc. EFF OZ (2009).Management Information Systems (6th. ed. international edition). Boston, U.S.A. Course Technology, Cengage Learning. Keith Pond (2007). Retail Banking . London, Great Britain. Request Digital, Global ProffesionalPublising Limited. Dave Hoyt (May 22, 2012). Wholesale Banking.Retrieved December 10, 2012, from https://www.wellsfargo.com/downloads/pdf/invest_relations/presents/may2012/wh olesale-banking.pdf. Kimberly Rhodes (2012). SunTrust Banks, Inc. Global Certification Of Anti-Money Laundering Program & Customer Identification Program. Retrieved December 18, 2012 from https://www.suntrust.com/Static/Documents/Global_Navigation/About_Us/Corpora te_Governance/AMLandCIPCertification.pdf. Md. Zahidul Islam (2011).Standard Chartered Bank. Retrieved December 18, 2012 from http://www.scribd.com/doc/88553742/Standard-Chartered-Bank. European Investment Bank (2010). THE EIB COMPLAINTS MECHANISM.Principles Terms of Reference and Rules of Procedure.Retrieved December 20, 2012 from http://www.eib.org/attachments/strategies/complaints_mechanism_policy_en.pdf. R. K. Uppal(2010). Customer complaints in banks: Nature, extent and strategies to mitigation. Retrieved on December 20, 2012 from http://www.academicjournals.org/jeif/pdf/pdf2010/Oct/Uppal.pdf. Fumiko Hayashi, Richard Sullivan, Stuart E. Weiner (2006). A Guide to the ATM and Debit Card Industry (2nd. ed.) Payments System Research, Federal Reserve Bank of Kansas City, Kansas City, Missouri, USA. Dr Lisa Harris, Dr Laura J. Spence (2002). THE ETHICS OF EBANKING.Retrieved on December 26, 2012 from http://www.csulb.edu/web/journals/jecr/issues/20022/paper5.pdf. 158 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Fumiko Hayashi (n.d.). In Mobile Payments: What’s in It for Consumers?. Retrieved November 04, 2012, from http://www.kc.frb.org/publicat/econrev/pdf/12q1Hayashi.pdf Reserve Bank of India (2011).Electronic Clearing Service (Credit) Procedural Guidelines. Retrieved on December 23, 2012 from http://rbidocs.rbi.org.in/rdocs/ECS/PDFs/ECR300411E.pdf. MR. ARUN KUMAR KAUSHIK(2012). E-BANKING SYSTEM IN SBI.Retrieved on December 23, 2012 from http://zenithresearch.org.in/images/stories/pdf/2012/JULY/ZIJMR/7_ZIJMR_JUL Y12_VOL2_ISSUE7.pdf. Lawrence J. Radecki and John Wenninger (1999).Paying Electronically.Retrieved on December 25, http://ftp.ny.frb.org/research/current_issues/ci5-1.pdf. 159 Electronic 2012 Bills from � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1563 Title A name given to the resource The Implementation of MIS in Banks of Tuzla Canton Author Author TRUMIĆ, Danel HANDZIC, Meliha Abstract A summary of the resource. Management Information Systems (MIS) are playing an important role in the banking sector. Increasing speed and power of information and communication technologies and their innovative applications enable banks operating in developed economies to gain competitive advantage and enhance their customer satisfaction. The purpose of this study is to investigate the issue in the case of a transitional economy. In particular, a survey study was conducted to audit the implementation of MIS in the banking sector of Canton Tuzla, Bosnia and Herzegovina. The data were collected from the employees who were users of MIS in major banks operating in Canton Tuzla. The collected data were analyzed using descriptive tests. The results revealed some interesting patterns. These findings and their implications are discussed in detail. In the end, some plausible directions are recommended for future research. Keywords: Management Information Systems, Bosnia and Herzegovina, Bank Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 978-9958-834-23-3 https://omeka.ibu.edu.ba/files/original/247ba129b67d80722280c2cf30f1621c.pdf e2bd42eb26d0db593696c32c2875bfbd PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Audit Tenure and Audit Quality: Evidence from Turkey Ahmet Türel İstanbul University, İstanbul, Turkey aturel@İstanbul.edu.tr Aslı Türel İstanbul University, İstanbul, Turkey Havva Nur Çiftçi İstanbul University, İstanbul, Turkey The rise of accounting scandals in the last decade has reduced trust of the users in audited financial statements, so users have started questioning the quality of audit work. This paper aims to test empirically whether audit-firm tenure reduces audit quality. After the accounting scandals in the USA and the Europe, and the associated failure of Arthur Andersen, benefits of audit firm or partner rotation on audit quality becomes a controversial subject. Sarbanes Oxley Act of 2002 considered audit firm tenure as a potential area that needed to be investigated because the consecutive years of auditor-client relationship has the potential to impair auditor independence. It is argued that the audit quality and therefore the quality of general purpose financial statements increase when a new auditor with fresh and skeptical eyes evaluates the financial statements. Using the same senior personnel on an audit engagement over a long period of time believed to create self-interest and familiarity threats to independence (Eilifsen, Messier, Glover and Prawit, 2010). For example, in the Enron case, it appears that the auditors became too familiar with the company personnel, such that independence in fact and in appearance both may have been compromised (Ryken et al, 2007). Familiarity lead to learned confidence about the results when making assumptions about outcomes and using less rigorous audit procedures or static audit programs. According to the new Independent Audit Communiqué issued in December 2012 by Turkish Public Oversight Accounting and Auditing Standards Board (POAASB), in an audit of the public interest entity, a firm shall not be the auditor for more than seven years for the last ten years. In addition to that, an individual shall not be a key audit partner for more than five years in the last seven years. After such time the individual shall not be a 21 �International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo member of the engagement team or be a key audit partner for the client for two years (Official Gazette, 25809). This paper tests whether a statistically significant association exists between the audit firm tenure with a client and evidence of reduced audit quality as measured by the propensity of modified audit opinions. We assume that the decline in audit quality is indicated by the auditor not issuing a modified opinion for firms whose financial statements are materially misstated. Based on a sample of 253 firms listed on İstanbul Stock Exchange (ISE) and 2277 firm-year observations of audit reports during the 2002-2010 periods, the analysis produces evidence that the number of consecutive years of audit firm-client relationship negatively affects the auditor quality measured by the propensity of modified audit opinions. We choose the 2008 and 2009 periods for our main analysis because in 2010 a mandatory audit firm rotation policy was executed for the companies listed in the ISE. Before this period Turkey has an environment where the rotation policy is not mandatory. The results of this study are expected to contribute the regulation of the quality of auditing by the regulator (POAASB) with regard to auditor rotation. Keywords: Audit Tenure, Audit Quality, Audit Opinion, Independence 22 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1468 Title A name given to the resource Audit Tenure and Audit Quality: Evidence from Turkey Author Author TUREL, Ahmet TUREL, Asli NUR CIFTCI, Havva Abstract A summary of the resource. The rise of accounting scandals in the last decade has reduced trust of the users in audited financial statements, so users have started questioning the quality of audit work. This paper aims to test empirically whether audit-firm tenure reduces audit quality. After the accounting scandals in the USA and the Europe, and the associated failure of Arthur Andersen, benefits of audit firm or partner rotation on audit quality becomes a controversial subject. Sarbanes Oxley Act of 2002 considered audit firm tenure as a potential area that needed to be investigated because the consecutive years of auditor-client relationship has the potential to impair auditor independence. It is argued that the audit quality and therefore the quality of general purpose financial statements increase when a new auditor with fresh and skeptical eyes evaluates the financial statements. Using the same senior personnel on an audit engagement over a long period of time believed to create self-interest and familiarity threats to independence (Eilifsen, Messier, Glover and Prawit, 2010). For example, in the Enron case, it appears that the auditors became too familiar with the company personnel, such that independence in fact and in appearance both may have been compromised (Ryken et al, 2007). Familiarity lead to learned confidence about the results when making assumptions about outcomes and using less rigorous audit procedures or static audit programs. According to the new Independent Audit Communiqué issued in December 2012 by Turkish Public Oversight Accounting and Auditing Standards Board (POAASB), in an audit of the public interest entity, a firm shall not be the auditor for more than seven years for the last ten years. In addition to that, an individual shall not be a key audit partner for more than five years in the last seven years. After such time the individual shall not be a member of the engagement team or be a key audit partner for the client for two years (Official Gazette, 25809). This paper tests whether a statistically significant association exists between the audit firm tenure with a client and evidence of reduced audit quality as measured by the propensity of modified audit opinions. We assume that the decline in audit quality is indicated by the auditor not issuing a modified opinion for firms whose financial statements are materially misstated. Based on a sample of 253 firms listed on İstanbul Stock Exchange (ISE) and 2277 firm-year observations of audit reports during the 2002-2010 periods, the analysis produces evidence that the number of consecutive years of audit firm-client relationship negatively affects the auditor quality measured by the propensity of modified audit opinions. We choose the 2008 and 2009 periods for our main analysis because in 2010 a mandatory audit firm rotation policy was executed for the companies listed in the ISE. Before this period Turkey has an environment where the rotation policy is not mandatory. The results of this study are expected to contribute the regulation of the quality of auditing by the regulator (POAASB) with regard to auditor rotation. Keywords: Audit Tenure, Audit Quality, Audit Opinion, Independence Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2303-4564 https://omeka.ibu.edu.ba/files/original/f57f2b651a91710bef83dfb8f98dc50d.pdf 0f7f435ff3498831fce60557e75eefad PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo IFRS Adoption and Audit LAG: Evidence from Turkey Aslı Türel İstanbul University, İstanbul, Turkey gunduzay@İstanbul.edu.tr Ahmet Türel İstanbul University, İstanbul, Turkey aturel@İstanbul.edu.tr Havva Nur Çiftci İstanbul University, İstanbul, Turkey hnciftci@İstanbul.edu.tr International Financial Reporting Standards (IFRS) adoption by the European Union is one of the biggest events in the history of financial reporting, making IFRS the most widely accepted financial reporting model in the world. The issue of complexity of IFRS has become a major concern among the preparers of financial statements, directors and auditors. Since IFRS demands detailed disclosures, it requires more effort and time to conduct the audit. Investors need reliable and timely information in order to take correct decisions, and auditing is the process that assures users of the reliability of the financial information that they require. This paper empirically examined whether IFRS adoption would affect audit lag. Also in this paper we investigated the factors (company size, sign of income, opinion, auditor size, sector, gearing, auditor change) that may affect the audit lag. In 2008 listed companies in the İstanbul Stock Exchange (ISE) are required to prepare their financial statements compatible with IFRS adopted by the European Union. Companies that listed in the ISE must submit their separate financial statements within 10 weeks and consolidated financial statements within 14 weeks of the financial yearend. The sample comprises 248 companies listed in the ISE during the period 2007 and 2008. The delays are measured as a function of the number of days that elapse from the closure of the accounting period until the date when the audit report is signed. In 2007, for solo financial th statement preparers 54% of them reported earlier than the expected 69 day after a company’s financial year-end. About 46% of the ISE listed companies reported late. In 2008, for solo financial statement preparers th 35% of them reported earlier than the expected 67 day after a company’s financial year-end. About 65% of the ISE listed companies reported late. In 2007, for consolidated financial statement preparers 56% of them 40 �International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo th reported earlier than the expected 97 day after a company’s financial year-end. About 46% of the ISE listed companies reported late. In 2008, for consolidated financial statement preparers 49% of them reported earlier th than the expected 95 day after a company’s financial year-end. About 51% of the ISE listed companies reported late. According to our preliminary results there is an increase in audit delay after IFRS adoption both for solo and consolidated financial statements. Keywords: IFRS, Financial Reporting, Audit Lag, Turkey, Timely Reporting. 41 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1483 Title A name given to the resource IFRS Adoption and Audit LAG: Evidence from Turkey Author Author TUREL, Asli TUREL, Ahmet NUR CIFTCI, Havva Abstract A summary of the resource. International Financial Reporting Standards (IFRS) adoption by the European Union is one of the biggest events in the history of financial reporting, making IFRS the most widely accepted financial reporting model in the world. The issue of complexity of IFRS has become a major concern among the preparers of financial statements, directors and auditors. Since IFRS demands detailed disclosures, it requires more effort and time to conduct the audit. Investors need reliable and timely information in order to take correct decisions, and auditing is the process that assures users of the reliability of the financial information that they require. This paper empirically examined whether IFRS adoption would affect audit lag. Also in this paper we investigated the factors (company size, sign of income, opinion, auditor size, sector, gearing, auditor change) that may affect the audit lag. In 2008 listed companies in the İstanbul Stock Exchange (ISE) are required to prepare their financial statements compatible with IFRS adopted by the European Union. Companies that listed in the ISE must submit their separate financial statements within 10 weeks and consolidated financial statements within 14 weeks of the financial yearend. The sample comprises 248 companies listed in the ISE during the period 2007 and 2008. The delays are measured as a function of the number of days that elapse from the closure of the accounting period until the date when the audit report is signed. In 2007, for solo financial statement preparers 54% of them reported earlier than the expected 69th day after a company’s financial year-end. About 46% of the ISE listed companies reported late. In 2008, for solo financial statement preparers 35% of them reported earlier than the expected 67th day after a company’s financial year-end. About 65% of the ISE listed companies reported late. In 2007, for consolidated financial statement preparers 56% of them reported earlier than the expected 97th day after a company’s financial year-end. About 46% of the ISE listed companies reported late. In 2008, for consolidated financial statement preparers 49% of them reported earlier than the expected 95th day after a company’s financial year-end. About 51% of the ISE listed companies reported late. According to our preliminary results there is an increase in audit delay after IFRS adoption both for solo and consolidated financial statements. Keywords: IFRS, Financial Reporting, Audit Lag, Turkey, Timely Reporting. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2303-4564 https://omeka.ibu.edu.ba/files/original/337ff0023ef0c587fb737b3af0250fbf.pdf b77d39343370545cecd92a7d6b046958 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Impact of Social Media in the Selection of Tourist Destinations: University Students for a Research Ercan Tutan Pamukkale University, Denizli, Turkey tutanercan@gmail.com Yasin Özaslan Yalova University, Yalova, Turkey ozaslanysn@gmail.com Internet, affecting every sector in the world, the tourism sector and interaction between the consumer and the tourism sector has changed. Consumers, separating time and money to buy touristic goods and services, want to live in the negative sense experience without any surprises. For this purpose, the consumers collect about the product/service information from various sources. These sources of information in the past, the traditional media and social environment of the acquired information with limited today, in online environments more comprehensive information is presented. Today, these online environments, most importantly, are the social media platforms. Social media platforms offer the opportunity to reach a very large audience in a short time, on these platforms, the positive / negative images, thoughts about touristic product / service, affects different degrees of consumers in terms of sharing of experiences. In addition, the increase in the use of smart phone consumers, as well as the use of internet social media makes it easier to transport. The purpose of this study is to determine the effect of social media in choice of tourist destination of university students. For this purpose, a questionnaire was developed. The questionnaire in order to improve 50 university students about an hour-long interview made and the meantime, whether they used social media for the selection of a touristic destination, which benefit from social media properties, on the purposes for which they use social media in the process, asked and the answers given in the literature used in conjunction with any item with the support of a total of 30 were obtained. Afterwards, a questionnaire was designed with the support of expert opinion. The questionnaire was prepared, first as a pilot study within the scope of the 100 people applied. After the pilot study, the necessary arrangements have been made and the final version of the 103 �International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo questionnaire, face-to-face interviews with 1748 university student was applied throughout Turkey. The obtained data were analyzed with statistical analysis program. According to the results of factor analysis for the analysis of the validity of five different sizes were determined. These are: "Information Sharing", " the Effect of the Members”, "Acquisition of Knowledge", "the Effect of Well-known People" and "Accuracy of Information" dimensions. As a result of the reliability test, the individual dimensions, the number of times the lowest and the highest alpha, was determined to be 79% to 69%. According to the results, social media is seen to be effective in the selection of tourist destination. Participants used social media for the purpose of obtaining information, "Acquisition of Knowledge" as a result of having the highest average size has been determined. In this study, as well as recommendations for future work are presented. Keywords: Destination, Decision-Making Process, Information Resources, Destination Marketing, Internet 104 Social Media, � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1561 Title A name given to the resource The Impact of Social Media in the Selection of Tourist Destinations: University Students for a Research Author Author TUTAN, Ercan OZASLAN, Yasin Abstract A summary of the resource. Internet, affecting every sector in the world, the tourism sector and interaction between the consumer and the tourism sector has changed. Consumers, separating time and money to buy touristic goods and services, want to live in the negative sense experience without any surprises. For this purpose, the consumers collect about the product/service information from various sources. These sources of information in the past, the traditional media and social environment of the acquired information with limited today, in online environments more comprehensive information is presented. Today, these online environments, most importantly, are the social media platforms. Social media platforms offer the opportunity to reach a very large audience in a short time, on these platforms, the positive / negative images, thoughts about touristic product / service, affects different degrees of consumers in terms of sharing of experiences. In addition, the increase in the use of smart phone consumers, as well as the use of internet social media makes it easier to transport. The purpose of this study is to determine the effect of social media in choice of tourist destination of university students. For this purpose, a questionnaire was developed. The questionnaire in order to improve 50 university students about an hour-long interview made and the meantime, whether they used social media for the selection of a touristic destination, which benefit from social media properties, on the purposes for which they use social media in the process, asked and the answers given in the literature used in conjunction with any item with the support of a total of 30 were obtained. Afterwards, a questionnaire was designed with the support of expert opinion. The questionnaire was prepared, first as a pilot study within the scope of the 100 people applied. After the pilot study, the necessary arrangements have been made and the final version of the questionnaire, face-to-face interviews with 1748 university student was applied throughout Turkey. The obtained data were analyzed with statistical analysis program. According to the results of factor analysis for the analysis of the validity of five different sizes were determined. These are: "Information Sharing", " the Effect of the Members”, "Acquisition of Knowledge", "the Effect of Well-known People" and "Accuracy of Information" dimensions. As a result of the reliability test, the individual dimensions, the number of times the lowest and the highest alpha, was determined to be 79% to 69%. According to the results, social media is seen to be effective in the selection of tourist destination. Participants used social media for the purpose of obtaining information, "Acquisition of Knowledge" as a result of having the highest average size has been determined. In this study, as well as recommendations for future work are presented. Keywords: Destination, Decision-Making Process, Social Media, Information Resources, Destination Marketing, Internet Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2303-4564 https://omeka.ibu.edu.ba/files/original/718e1f93fbc236a90fc0b987b10b2e2a.pdf be94b4b4288250352e5d86363ce3ab3a PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Role of Religion on Turkey’s International Trade Halil Uçal Adnan Menderes University, Aydın, Turkey hucal@adu.edu.tr In the last decade, with the help of political stability, Turkish economy has grown rapidly. After the financial crisis in 2001 not only economy but also international trade volume has started to improve. The trade policy which had focused on Customs Union with European Community changed and resulted to expansion to other regions. Especially Middle East and Asian countries’ share increased in Turkey’s total trade. As it is known, there has been a debate about Turkey's shift of axis on foreign policies and on international trade. In recent years Turkey carries out more active policies in Middle East region. According to some views, a conservative and religiously oriented government is the cause of the changes in policies. The aim of this paper is to find the role of the religious affinity on Turkey's international trade. Turkey's foreign trade will be analyzed by using Gravity Theory Method. Panel regression method will be used for econometric modeling. The variables used in the model covers 2002-20011 yearly data of Turkey's bilateral trade volumes with main trade partners. In the first section, a comparative analysis of Turkish foreign trade will be made between the last decades and before. In the second section, the new aspects on foreign policies and the effects on foreign trade will be discussed. In the third section, the econometric analysis will be presented. Finally, the empirical results will be discussed. It is expected that the religious similarity plays a positive role in enhancing foreign trade. Keywords: Gravity Theory, Trade, Religion, Turkey. 142 � Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Extent The size or duration of the resource. 1572 Title A name given to the resource The Role of Religion on Turkey’s International Trade Author Author UCAL, Halil Abstract A summary of the resource. In the last decade, with the help of political stability, Turkish economy has grown rapidly. After the financial crisis in 2001 not only economy but also international trade volume has started to improve. The trade policy which had focused on Customs Union with European Community changed and resulted to expansion to other regions. Especially Middle East and Asian countries’ share increased in Turkey’s total trade. As it is known, there has been a debate about Turkey's shift of axis on foreign policies and on international trade. In recent years Turkey carries out more active policies in Middle East region. According to some views, a conservative and religiously oriented government is the cause of the changes in policies. The aim of this paper is to find the role of the religious affinity on Turkey's international trade. Turkey's foreign trade will be analyzed by using Gravity Theory Method. Panel regression method will be used for econometric modeling. The variables used in the model covers 2002-20011 yearly data of Turkey's bilateral trade volumes with main trade partners. In the first section, a comparative analysis of Turkish foreign trade will be made between the last decades and before. In the second section, the new aspects on foreign policies and the effects on foreign trade will be discussed. In the third section, the econometric analysis will be presented. Finally, the empirical results will be discussed. It is expected that the religious similarity plays a positive role in enhancing foreign trade. Keywords: Gravity Theory, Trade, Religion, Turkey. Publisher An entity responsible for making the resource available International Burch University Date A point or period of time associated with an event in the lifecycle of the resource 2013-05-10 Keywords Keywords. Article PeerReviewed Identifier An unambiguous reference to the resource within a given context ISSN 2303-4564