189 10 3494 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/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/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/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. References Ang, Andrew and Francis A, Longstaff, (2011). “Systemic Sovereign Credit Risk: Lessons from the U,S, and Europe,” NBER WorkingPaper No, 16982, Augustin, Patrickand Romeo Tedongap (2011). “CommonFactorsandCommonality in Sovereign CDS Spreads: A consumption-basedexplanation,” Banco de España – 15 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Bank of Canada Workshop on "Advances in FixedIncomeModeling," Madrid, 2011, 4-5 of July Baek, I,, Bandopadhyaya, A, andDu, Chan, (2005). “Determinants of marketassessedsovereign risk: Economicfundamentalsor market risk,” Journal of International Money & Finance, 24: 533–548, Cantor, R, and F, Packer, (1996). “ Determinantsandimpact of sovereigncreditratings,” EconomicPolicyReview (19320426) 2(2): P37, Catão, L, andSutton, B, (2002). “SovereignDefaultsthe Role of Volatility”,International MonetaryFundWorkingPaper 149:16-18, Cho, Dongchul (2010). “Responses of theKoreanEconomytothe Global Crisis:AnotherCurrencyCrisis?”, 2010 EWC/KDI Conference on “Global EconomicCrisis: Impacts, Transmission, andRecovery” in Honolulu, Hawaii. Cochrane ,J, (1991). “A critique of theapplication of unitroottests,” Journal of Dynamics and Control, Vol, 15 Issue 2: 275-284, Economic M. Coronado, M. T. Corzo and L.Lazcano (2012). “A Case for Europe: The Relationship between Sovereign CDs and Stock Indexes” Frontiers in Finance and Economics, Vol. 9, No. 2, 32-63. Fama, E,F, (1981). “Stockreturns, realactivityand Money,”TheAmericanEconomicReview, Vol, 71, No,4:545-565. Fontana, A, and M, Scheicher, (2010). An analysis of euroareasovereign CDS, European Central Bank WorkingPaper Series 1271. Garcia, M, and R, Rigobon, (2005). “A Risk Management ApproachtoEmergingMarket‟sSovereignDebtSustainabilitywith an Application toBrazilian Data,” in: F, Giavazzi, I, Goldfajn, and S, Herrera (eds,), InflationTargeting, DebtandtheBrazilianexperience 1999 to 2003, MIT Press. Garcia-Herrero, A and A, Ortiz (2007). “The role of global risk aversion in explaining Latin Americansovereignspreads,” Economia 7(1), 125-155. Georgievska, A,, L, Georgievska, A,StojanovicandN,Todorovic, (2008). “Sovereignreschedulingprobabilities in emergingmarkets: a comparisonwithcreditratingagencies' ratings,” Journal of AppliedStatistics, 35: 1031-1051. Hilscher, JensandYvesNosbusch (2010). “Determinants of Sovereign Risk: Macroeconomic Fundamentals andthePricing of SovereignDebt,” Review of Finance ,14: 235–262. Kamin, Steven, andKarstenvonKleist (1999). “TheEvolutionandDeterminants of Emerging Market CreditSpreads in the 1990s,” Workingpaper No, 68, Bank for International Settlements. 16 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Longstaff, Francis A, JunPan, Lasse H, Pedersen andKenneth J, Singleton, (2011). “How Sovereign Is SovereignCredit Risk?” AmericanEconomicJournal, 3: 75–103. Mauro, P, N Sussmanand Y, Yafeh (2002). “Emerging market spreads: thenversusnow,” QuarterlyJournal of Economics, May:695-703. McGuireP.and M. A Schrijvers (2003) “Commonfactors in emerging market spreads” BIS QuarterlyReview : 65-78. Mellios, C, and E, Paget-Blanc (2006). “Theimpact of macro-economicvariables on thesovereign CDS spreads of theEurozonecountries : Examiningthedeterminants of creditdefaultswaps,” Journal of Finance, 12 (4) :363. Pan, J. andSingleton, K. J. (2008). Defaultandrecoveryimplicit in thetermstructure of sovereigncdsspreads, TheJournal of Finance 63(5): 2345{2384. Reinhart, C, and K, Rogoff, (2008). This time is different: EightCenturies of Financial Folly, New Jersey: Princeton UniversityPress. Remolona, E., Scatigna, M. andWu, E. (2008). Thedynamicpricing of sovereign risk in emergingmarkets: Fundamentals and risk aversion, Journal of FixedIncome 17(4): 57 {71. SturzeneggerFedericoandJerominZettelmeyer (2007). “DebtDefaultsandLessonsfrom a Decade of Crises,”MIT Press:9-10. Weigel,Diaz D, and G Gemmill,(2006). “WhatDrivesCredit Risk in EmergingMarkets? TheRoles of Country Fundamentals and Market Co-Movements,” Journal of International Money and Finance, 25: 476–502. Westphalen, M, (2001). “Thedeterminants of sovereignbondcreditspreadschanges,” Workingpaper, University of Lausanne. 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/0ec57e2b4b4b7043267e9f578a611ad7.pdf 2fb88ad937a8fff27388d3c9de8a1b26 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Event Marketing – A Powerfull Tool Case : Red Bull Šinomobil Event Damir Topalovid International Burch University, Sarajevo, Bosnia and Herzegovina damirto@hotmail.com In the today's society, it is very challenging to keep up with the marketing trends. There are a lot of factors that should be considered in the pursuit for the potenitial consumers. The chase is spiced even more, if we consider that consumers are slightly evolving with every next generation, as should evolve our approach to them. This paper discovers the idea of Event Marketing and the opportunities that are available to everyone who plans the desired activity creatively, and considering all important elements, in order to reach the target group. The case study of Red Bull Šinomobil event was the suitable as the Best Practice event, that prooves the idea and shows the awareness about the brand created. The successful organization resulted with the high media coverage and 8.25 mil people reached in total, plus the enormous WOM created. Keywords: Event Marketing, Powerfull Tool, Red Bull Šinomobil, Best Practice event 83 � https://omeka.ibu.edu.ba/files/original/e42962e2ce63bdb739942f6f253d4c21.docx 7e1377bef799b24bcd7e85771e965706 https://omeka.ibu.edu.ba/files/original/a321d1ca3957ca8142d3480e8c34a57a.pdf e7c952b0fb1485ecebef7ef6f90fdaf7 PDF Text Text International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Event Marketing – A PowerfullToolCase : Red Bull ŠinomobilEvent DamirTopalović International Burch University, Sarajevo, Bosnia and Herzegovina damirto@hotmail.com Abstract In today's society, it is very challenging to keep up with the marketing trends. There are a lot of factors that should be considered in the pursuit for the potenitial consumers. The chase is spiced even more, if we consider that consumers are slightly evolving with every next generation, as should evolve our approach to them. This paper discovers the idea of Event Marketing and the opportunities that are available to everyone who plans the desired activity creatively, and considering all important elements, in order to reach the target group. The case study of Red Bull Šinomobil Race event was the suitable as the Best Practice event, that prooves the idea and shows the awareness about the brand created. The successful organization resulted with the high media coverage and 8.25 mil people reached in total, plus the enormous WOM created. Keywords: Event Marketing, Red Bull®, Word of Mouth. Introduction How much does the organized event effect the popularization of a product, service or brand? Is it a sustainable way of advertising and for how long it can stay memorized in the heads of consumers? Is it expensive to organize an event? Those are the questions that I tried to answer in this paper. Advertising is a model of communication in marketing which tries to inform the potential consumers and awake their interest towards the product or service. A company that would like to advertise its service or product, chooses the type of media as a transmitter of their message to the public, which can be: television, radio, newspaper, magazine, movie, internet, mobile phone, event (conference, fair, etc...), poster, bilboard, etc... Selection of the media is highly important and it should intend to reach as much of our potential consumers as it can. Of course, there are certain rules and restrictions by the valid laws that should be obeyed. Marketing Marketing is a social, calculated, and controlled process, which helps the individals or groups to get what they need, by creating the offer and the opportunity to exchange goods. Traditionally, marketing represents the activities which help the product or service to meet the consumer, user or client. Application of marketing at the market can be represented trough the process of four steps, which starts with the analysis of the ''universum'' of potential conusmers. After that, 146 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo commes the attracting their Attention\Awareness to your product or service, which turns into the Interest to know more about it. In the third phase, you would convincethepotentialconsumersthattheyDesiretheproductor service, whichwillsatisfytheirneeds, sothey can completetheprocessbyAction of purchase of a product, subscription, download, ortheuse of otherservices. (AIDA model, E. St. ElmoLewis, 1898) Generally, themarketingrepresentsthepursuit of discoveringtheneedsandinterests of consumers, whicharedevelopedandsatisfied in theend. It is a civilizedtype of a combat, whereyouwinwiththewords, ideasandstrategicthinking. Event Event is a moment in time, when something special is happening, happened or it is above to happen. Considering the dimension of gathering, event can be: - celebration (wedding) - competition (sports) - conference - exhibition (photo, car show) - festival - media event - party Managing an event would include a lot of factors and details that should be considered, in order to make it successful. Engagement of an external body, an event agancy, turns out as one of our options. After defining the goal of the event, a good event organizer will carefully select the location of the organization, which will fit to the type of the event. In this case, the functionality of the space is one of the crucial factors, where the size, the commodity of the event visitors, and the circularization of the people is unnegotiable. Responsible approach to the organization of the event such as, conference, meeting, fair, round table, fashion show, or even the competition usually includes: - budget plan - location selection - team definition, event staff (task distribution) - event concept writting - promotion materials preparation (posters, flyers, presents...) - person for the public relations and media - event coordinator - manager - collecting necessary permits by law - program definition and writting (exact timing definition) - definition of the best technical solution for the event - scenery definition and set up - audio, video, lighting equipment - engagement of the ambulance, fire dept. and the police - engagement of the security officers (according to the valid laws) - registration of the participants (info desk and the people) - engagement of experts (refrees, waiters, translators, hostesses, DJs, dancers, animators, announcers) 147 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo - guests coordination - VIP guests program - welcome drink (cocktail) - addressing to the guests, audience (speach writting) - catering (lunch, dinner...) - transportation and parking - other logistics issues - weather forecast (for outdoor events) - regulation of the payments towards the services used It is strongly recommended to find the different solution for every event, in the way that the main idea comes as the result of the market research and that follows the latest event trends. Only in that case the success will not stay away. It would be an advantage if the organized event was the part of the overal marketing plan, since the events reach the consumers face to face, in more relaxed manner, which is a good chance to make them feel connected to the product of service. Red Bull Red Bull® wasintroduced in 1984 in Austria, Europe. Afterthejust 13 yearsyoucould buy it in almostallEuropeancountries, USA, Africa, South America, andThe Caribbean. Thecompany is located in Salzburg, Austria, wheretheproduct is cannedanddistributedtoallparts of theworld. That is the 100% guaranteeforthesamecontent in each can. RedBull® EnergyDrink is a functionaldrinkwiththespecialformulaandthecombination of ingredients, developedforthesituations of extremephysicalandmentalactivities. Itseffectsarerecognizedbythesportsmen, workingprofessionals, activestudents, driversandallotherswhoneedtheenergy. EventsorganizedbyRedBullaregenerallydivided in twogroups: - Small Fire Events (small) - BrandBuildingEvents (big) Bigeventsareopenedforthewholepopulation of consumers, theyareinterestingtoallpeople, andtheyresult in highpublicity. Small eventsaretargetingthespecificgroup of consumersforexample, students, workingpeople, etc. RedbullŠinomobilRaceeventwasorganized in theSeptember 26, 2010 in Sarajevo, on thetramrails. Itwasthecompetitionwhereyouneededtomake a railoperatingvehicle, accordingtotheprescribedstandards, andwinthedragraceagainstyouopponenttogettothenextroundbyknock-outsystem. Calculation May – September, 2010 - 8000 flayers, 300 posters distributed, Facebook Spent: EUR 450,00 - September, 2010: 148 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Radioannouncements: - 2 radiojingles, 8 radiostations, 2 weeks Spent: EUR 4.350,00 Outdoor media: - 20 City Light posters, 4 weeks Spent: EUR 4.700,00 - 6 branded tram stops Spent: EUR 5.700,00 - 60 posters inside the operating trams Spent: EUR 950,00 Internet announcements: - 4 web portals, 2 weeks Spent: EUR 4.300,00 Bluetooth City Network: - 60.000 SMS messages, 2 weeks Spent: EUR2.300,00 TOTAL SPENT ON EVENT ADVERTISING: EUR 22.750,00 During the applications of contestors in May, 2010 4 top TV stations in the country emitted 15 minutes of highlight news about the forthcoming Red Bull Sinomobil Race. Top 5 TV stations emitted 40 minutes of news about the event in September. On line medias showed the great interest about the event. More than 20 articles were talking about the incoming event. The Red Bull Sinomobil Race event ended successfuly, with 10.000 people in the audience on the spot. Most of the TV channels infomed the public about the winners of the Race. All popular web portals transmited the news also. You could find the articles about the Šinomobil in most of the tomorrow’s newspaper. Table 1: Total Media Outcome of the Event 1. RED BULL SINOMOBIL MEDIA OUTCOME TV SEP 5 mil contacts & May 2 mil. WEB 0,5 mil Radio 0,5 mil listners. Print Total: 0,25 mil 8,25 mil 149 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Just for the comparision, I have calculated the cost of the overal free TV broadcast about the Race in total. Recollect, there were no paid TV advertisements of the event. Table 2: Calculation of the total cost of the TV broadcast Number of TV Number stations minutes 5 140 minutes of Number of Average second AMOUNT seconds price in BiH 8400 seconds EUR 12,00 EUR 100.800,00 EVENT ADVERTISING COSTS: EUR 22.750,00 FREE TV MEDIA BROADCAST (Approx.): EUR 100.800,00 Conclusion There is no need to add the free web and newspaper publications about the Race, and to calculate other logistic expenses of the event, to conclude that Red Bull Šinomobil Race event was a true success. It is a true trophy to create an event interesting enough for the people and the media, which talks only the best about your company, in this case the brand. Of course, we must not forget the 10,000 spectators and 68 participants, which were directly introduced with the Race and the Red Bull brand, on the spot. All of them participated in the creation of massive WOM1 after the event, by spreading the news and their experience with the third parties, which increases the total number of contacts much more then 8,25 mil. This paper prooves that WOM effect lasts even three years after. Event preparation and execution is a demanding job, and requires the certain number of factor that should be put together in harmony. But, if the competence, experience, hard work and a bit of luck is on your side, the success is guaranteed. Considering the current period of economic crisis and the fact that all budgets are decreased, I wanted to proove that Event Marketing is a powerful and sustainable marketing and communication tool. References 1. 2. 3. 4. 5. 6. 1 Haton, A.,“Planiranje u marketingu”,Clio (2003), Beograd Abraham, H. M., “A Theory of Human Motivation”, PsychologicalReview Brkić, N., “Upravljanje marketing komuniciranjem”, Ekonomskifakultet (2003), Sarajevo Kotler, P., “Upravljanje marketingom-Marketing Menagement”, Informator (1994), Zagreb Spahić, B., ”Dizajn-ekonomski, društveni i politički aspekti oblikovanja”, MIB (2002), Sarajevo Sparling, K., ”Organizacija i funkcija marketinga”, Clio (1994), Beograd WOM – Word of Mouth (www.merriam-webster.com) 150 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. Smith, P.,„Marketinškekomunikacije“,Clio (2002), Beograd Tracy, B., „Zlatna pravila uspeha“ , Finesa (2005), Beograd Tucaković Š.,”Leksikon mas-medija”, Prosperitet (2004), Sarajevo Lammiman, J. & Syrett, M., ’’Cool generacija – Nova poslovna filozofija’’, Naklada ljevak (2005), Zagreb www.marketingmagazine.co.uk/ http://www.marketing-odjel.com/marketing http://www.economy.rs/biznis-mali/27/saveti/osnove-marketinga/Sta-jemarketing-.html http://www.biggraphicimpressions.com/event-marketing.cfm http://ds178-77-125-83.dedicated.hosteurope.de/ http://www.executivevisions.com/event-marketing.asp http://www.pierceevents.net http://www.marketlikeachick.com/virtual-event-marketing-with-social-media/ http://en.wikipedia.org/wiki/Word_of_mouth http://www.nidus.org/ https://infonet.redbull.com/Infonet/CommunicationsModule/ShowStartPage http://www.merriam-webster.com/dictionary/word-of-mouth http://www.pink.co.ba/marketing/ http://www.hayat.ba/marketing/113-cjenovnik-oglaavanja-u-programu-tv-hayat http://www.rtvfbih.ba/doc/Cjenovnik-FTV-2011-za-web.pdf http://www.obn.ba/download/cjenovnik%20usluga.pdf http://tvsa.ba/Cjenovnik_marketinskih_usluga_TVSA.pdf www.facetv.ba/downloads/market3.xls 151 � 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. 1523 Title A name given to the resource Event Marketing – A Powerfull Tool Case : Red Bull Šinomobil Event Author Author TOPALOVIĆ, Damir Abstract A summary of the resource. In the today's society, it is very challenging to keep up with the marketing trends. There are a lot of factors that should be considered in the pursuit for the potenitial consumers. The chase is spiced even more, if we consider that consumers are slightly evolving with every next generation, as should evolve our approach to them. This paper discovers the idea of Event Marketing and the opportunities that are available to everyone who plans the desired activity creatively, and considering all important elements, in order to reach the target group. The case study of Red Bull Šinomobil event was the suitable as the Best Practice event, that prooves the idea and shows the awareness about the brand created. The successful organization resulted with the high media coverage and 8.25 mil people reached in total, plus the enormous WOM created. Keywords: Event Marketing, Powerfull Tool, Red Bull Šinomobil, Best Practice event 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/9427d736f3a7084393f68af42235e50f.pdf 900956a09dd749af39a68040a6180356 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Students’ Awareness about TAS and TFRS who are Educated in Business Administration: An Example of Afyon Kocatepe University Yusuf Topal Afyon Kocatepe University, Afyon, Turkey ytopal75@hotmail.com Zübeyde Kaya Afyon Kocatepe University, Afyon, Turkey zkaya64@hotmail.com When we look over to the history of Turkish Accounting Standards (TAS) and Turkish Financial Reporting Standards (TFRS), it is predicated on the World Accounting Conference which was performed in Australia–Sydney in 1972. Because of these accounting standards that are shaped by making many changes until now are far out from recent accounting standards and bring many innovations, there are difficulties in implementing of the standards. In the study, it is aimed to measure the level of students’ interest and awareness about Turkish Accounting Standards and Turkish Financial Reporting Standards who are educated in Accounting and Finance Program in Afyon Kocatepe University. In this purpose, a survey was applied to the students. The results obtained from survey were analysed by using SPSS Package program. At the end of the study, by grouping the students, it was tried to determine which group has high level of awareness. Keywords: Turkish Accounting Standards; Turkish Financial Reporting Standards. 276 � 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. 1687 Title A name given to the resource The Students’ Awareness about TAS and TFRS who are Educated in Business Administration: An Example of Afyon Kocatepe University Author Author TOPAL, Yusuf KAYA, Zubeyde Abstract A summary of the resource. When we look over to the history of Turkish Accounting Standards (TAS) and Turkish Financial Reporting Standards (TFRS), it is predicated on the World Accounting Conference which was performed in Australia–Sydney in 1972. Because of these accounting standards that are shaped by making many changes until now are far out from recent accounting standards and bring many innovations, there are difficulties in implementing of the standards. In the study, it is aimed to measure the level of students’ interest and awareness about Turkish Accounting Standards and Turkish Financial Reporting Standards who are educated in Accounting and Finance Program in Afyon Kocatepe University. In this purpose, a survey was applied to the students. The results obtained from survey were analysed by using SPSS Package program. At the end of the study, by grouping the students, it was tried to determine which group has high level of awareness. Keywords: Turkish Accounting Standards; Turkish Financial Reporting Standards. 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/3dede4e3f591dcda0c386b9fd6211831.pdf ebf52ecb1acc5779ff8d97269e96c1f0 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Leverage Effect of Marketing in Uncertainty Condition: Examination of ISE-100 Tülay Top Mehmet Akif Ersoy University, Burdur, Türkiye tlytop@mehmetakif.edu.tr Economic sense of uncertainty / risk concept was started to use at the time of transition from traditional society to modern society. Uncertainty means, “the probability of events that adversely affect the economic decision makers' return on their decisions, in other words the situation that known the possibility of occurrence of events. Giddens distinguished the uncertainty into two parts. They’re “external risks” that originated from external, custom of tradition, or unchanging of nature; “produced risks” produced by absolute effect of developed information about the world. Realization possibility of external risks varies from year to year and cannot be predicted. However when the ignored risks are analyzed, it’s seen that the modern capitalism reckons the future profits and losses so it organizes future by uncertainties produced by itself, marginalizes and dominates the future. Multiplicity of produced risks almost keeps a barrage of metaphor the businesses. Even businesses provide against any uncertainty, in case of emergence of an unpredicted and coming from another side they can’t provide against it. With the economic crisis experienced businesses in Turkey started to attach importance to “how they provide against to crisis period” topic. For this a lot of precaution can be said like borrowing/un borrowing with currency or gold, project and confirmation before investing, rating criterion of banks etc. Namely management after crisis, management at the time of crisis and management after crisis is an issue that needs to be known and hold up as an example. In this study, it is aimed to investigate the difference between the company performance and marketing effectiveness by using ISE-100 data. To achieve this aim, first of all, kind of economic crisis and the crisis in turkey will be examined. At the last part, companies marketing and companies performances will be analyzed with the help of financial tables and by using ISE-100 data. On the earth surface, manufactured risks, not only affects the manufactured region but also effects the transnational. In this context, by considering the Turkey’s geopolitical and economic cooperation, the crisis in the Europe and in any other community, affects the ISE-100 firms. Contribution to the literature will be provided with the determination of the leverage effect of the companies which are traded in ISE-100 in uncertainty condition which are placed in Turkey. Keywords: Risk, Crisis, Turkey, ISE-100, Marketing, Company Performances. 266 � 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. 1624 Title A name given to the resource Leverage Effect of Marketing in Uncertainty Condition: Examination of ISE-100 Author Author TOP, Tulay Abstract A summary of the resource. Economic sense of uncertainty / risk concept was started to use at the time of transition from traditional society to modern society. Uncertainty means, “the probability of events that adversely affect the economic decision makers' return on their decisions, in other words the situation that known the possibility of occurrence of events. Giddens distinguished the uncertainty into two parts. They’re “external risks” that originated from external, custom of tradition, or unchanging of nature; “produced risks” produced by absolute effect of developed information about the world. Realization possibility of external risks varies from year to year and cannot be predicted. However when the ignored risks are analyzed, it’s seen that the modern capitalism reckons the future profits and losses so it organizes future by uncertainties produced by itself, marginalizes and dominates the future. Multiplicity of produced risks almost keeps a barrage of metaphor the businesses. Even businesses provide against any uncertainty, in case of emergence of an unpredicted and coming from another side they can’t provide against it. With the economic crisis experienced businesses in Turkey started to attach importance to “how they provide against to crisis period” topic. For this a lot of precaution can be said like borrowing/un borrowing with currency or gold, project and confirmation before investing, rating criterion of banks etc. Namely management after crisis, management at the time of crisis and management after crisis is an issue that needs to be known and hold up as an example. In this study, it is aimed to investigate the difference between the company performance and marketing effectiveness by using ISE-100 data. To achieve this aim, first of all, kind of economic crisis and the crisis in turkey will be examined. At the last part, companies marketing and companies performances will be analyzed with the help of financial tables and by using ISE-100 data. On the earth surface, manufactured risks, not only affects the manufactured region but also effects the transnational. In this context, by considering the Turkey’s geopolitical and economic cooperation, the crisis in the Europe and in any other community, affects the ISE-100 firms. Contribution to the literature will be provided with the determination of the leverage effect of the companies which are traded in ISE-100 in uncertainty condition which are placed in Turkey. Keywords: Risk, Crisis, Turkey, ISE-100, Marketing, Company Performances. 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/bfabbff0aa9d97fbdfe3e0059f6444e7.pdf d129e73df43ebeab532e23971065c271 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Europe’s Energy Security and Caspian Oil and Natural Gas Ahmet Tolga Türker İstanbul Arel University, İstanbul, Turkey atturker@arel.edu.tr For the countries in the Caspian region, whether they have been endowed with large resources of oil and natural gas or not, the energy politics and energy security has been at the heart of their efforts to build sovereign and prosperous states. To this end, oil and gas producing countries in the region have established arrangements governing the exploration and transportation of their resources to world markets as a central element of their foreign policies, whereas consumer countries carefully crafted their levels of dependence on energy-endowed powers since it is vitally important in determining their ability to formulate their domestic and foreign policies independently. For Europe, on the other hand, the discovery of the importance of energy security has been more recent, and mainly linked to the increasingly assertive policies that the Russian government and its monopolistic subsidiary, Gazprom, have adopted over the past years. As the European Union countries have begun to realize their problem and look for ways to diversify its supply of energy, the potential role of the Caspian region has inevitably emerged on the agenda. However, member countries seem to pursue their own energy policy, which only decrease the overall security of the Union and limit the EU’s foreign policy options. Apart from this observation, this project explores several aspects of European energy security particularly its dependence on Russia and the role of Caspian states as a source of alterative supply and argue that European countries must establish a European level energy strategy. Accordingly this study will unfold in four sections. First section will review Europe’s energy vulnerability along with the similarities between European and Caspian states in terms of energy politics. Second section will provide an analysis of emerging Russian energy diplomacy and the role of Gazprom in the light of recent developments. Third section will put forward the Caspian and the Black Sea as a future hub of energy for Europe and will discuss the role and importance of Nabucco and Trans-Caspian pipelines as the two most important infrastructure projects. Final section will critically review the EU’s approach to energy security and discuss the need to develop a more cohesive EU approach towards Caspian countries as well as issues of energy security. Even though certain individual decisions can be made by member states alone, these decisions should be made in accordance with the greater strategy goals set by the European Union. Keywords: European Union, Caspian Sea, Energy, Security. 20 � https://omeka.ibu.edu.ba/files/original/b68b495f36bcd76d11b422e1ac5a956a.docx a9da7b2eee5f9b52b8392c82c9d1b92b https://omeka.ibu.edu.ba/files/original/9a1ad1b9c8930a47f8ec7d8c96eff548.pdf bec986f06c15aa93d047879f09b69bbe PDF Text Text International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Europe’s Energy Security and Caspian Oil and Natural Gas AhmetTolgaTürker İstanbul Arel University, İstanbul, Turkey atturker@arel.edu.tr Abstract For the countries in the Caspian region, whether they have been endowed with large resources of oil and natural gas or not, the energy politics and energy security has been at the heart of their efforts to build sovereign and prosperous states. To this end, oil and gas producing countries in the region have established arrangements governing the exploration and transportation of their resources to world markets as a central element of their foreign policies, whereas consumer countries carefully crafted their levels of dependence on energy-endowed powers since it is vitally important in determining their ability to formulate their domestic and foreign policies independently. For Europe, on the other hand, the discovery of the importance of energy security has been more recent, and mainly linked to the increasingly assertive policies that the Russian government and its monopolistic subsidiary, Gazprom, have adopted over the past years. As the European Union countries have begun to realize their problem and look for ways to diversify its supply of energy, the potential role of the Caspian region has inevitably emerged on the agenda. However, member countries seem to pursue their own energy policy, which only decrease the overall security of the Union and limit the EU’s foreign policy options. Apart from this observation, this project explores several aspects of European energy security particularly its dependence on Russia and the role of Caspian states as a source of alterative supply and argue that European countries must establish a European level energy strategy. Accordingly, this study will unfold in four sections. First section will discuss the paradox of European energy dependency on Russia given that the EU has three and half times as many people, spends seven times as much on its military, and has a GDP fifteen times larger than Russia review Europe’s energy vulnerability along with the similarities between European and Caspian states in terms of energy politics. Second section will review Europe’s energy vulnerability along with the similarities between European and Caspian states in terms of energy politics. Third section will examine the policy alternatives for the EU in order to gain greater cohesion regarding their external energy policy and upper hand in dealing with Russia. Overall the EU must critically review its approach to energy security and look for ways to develop a more cohesive EU approach towards Caspian countries as well as issues of energy security. Even though certain individual decisions can be made by member states alone, these decisions should be made in accordance with the greater strategy goals set by the European Union. Keywords: European Union, Caspian Sea, Energy Security, Oil, Natural Gas Introduction Up until the early 1990s, due to relatively low prices, energy issues did not receive much attention from the policymakers and the scholars of political science. However two events have changed the outlook of global energy politics. First, the Gulf War alerted policymakers when a significant portion of Middle Eastern energy supplies faced the threats of an Iraqi invasion of Kuwait. Second, the collapse of the Soviet Union was a 19 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo welcome development as it suddenly provided the possibility of an alternative source of energy supply to the world. By the twenty-first century energy studies consolidated its position as high priority when oil and gas prices started to rise in 1999. Over the last decade global oil prices have increased by more than five times from 20USD per barrel in August 1999 to 116USD per barrel in March 2013 (Indexmundi, 2013). The world is facing serious economic security challenges, predominantly determined by the growing population and growing need of resources in developing countries. The world’s population will increase to 8 billion by 2030 from the current population of 6.5 billion, and 95 percent of that growth will be in developing countries. If this population growth is supported by growing economic potential and standard of living, more and more resources, and in particular energy resources, will be required. The International Energy Agency predicts a 50% increase in energy demand by 2030, even if efficiency is increased. About 70 percent of this increase is going to be in developing countries, and those countries are relying primarily on fossil fuels because of the very significant cost advantage (IEA, 2010). These numbers indicate the inevitability of increased pressure on the European economy. Today, it has become even clearer that energy security has proved to be a significant source of power in foreign policymaking. Accordingly, this paper argues that Europe’s high and rising energy demand is highlighting the security problems associated with its dependence on especially Russian gas supplies, and the need for diversifying European energy supply. The EU’s vulnerability in this regard is the result of dealing bilaterally with Russia on energy issues and thus granting Russia the capacity to have the upper hand among EU states. Therefore, in order to overcome its energy dependence on Russia, the EU needs to establish a European-level external energy strategy, become more cohesive regarding its external energy policy. In this regard, the strategic location of the Caucasus and Central Asia make it an area of growing importance in the contemporary security environment, particularly given regional instability and the potential threat to Western economic interests because of its energy resources and transport infrastructure. The Caspian region provides the most accessible alternative, provided that the region’s resources are transported through the Caucasian corridor, which also requires significant infrastructure investments (Sokolsky&Charlick-Pailey, 1999, p. 10). A more formal framework between the EU and the Caspian region states should be established to streamline EU policies on energy (Dağdemir, 2007, p. 249). European states must realize that working together on issues of energy security, especially when dealing with Russia, will be mutually beneficial in the long term. The rest of this paper is organized in following sections: First section will discuss the paradox of European energy dependency on Russia given that the EU has three and half times as many people, spends seven times as much on its military, and has a GDP fifteen times larger than Russia review Europe’s energy vulnerability along with the similarities between European and Caspian states in terms of energy politics. Second section will review Europe’s energy vulnerability along with the similarities between European and Caspian states in terms of energy politics. Third section will examine the policy alternatives for the EU in order to gain greater cohesion regarding their external energy policy and upper hand in dealing with Russia. 20 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo The Paradox of European Energy Policy Recent developments in Europe and Central Eurasia, as well as growing tensions between the EU and Russia over energy issues, have brought new opportunities for alternative suppliers of energy and transit corridors (Baskan&Bac, 2011, p. 361). Table 1 demonstrates that the EU relies on Russia for third of its oil and natural gas and thus diversification of routes and sources is a strategic priority. Moreover the energy disputes of early January 2006, when the disruption in Russian gas supplies to European countries, including Germany and Italy, reaffirmed Europe’s vulnerability in its dependence on imported Russian gas (Egerhofer et al., 2006). Russia’s political decision to cut off gas supplies to Ukraine, the main transit country for Russian gas headed to Europe, amid a dispute over prices, awakened the EU. The Russian government seemingly replicated this incident in early 2007 when a price and transit fee dispute with Belarus caused another crisis. These incidents have shown the weakness of the European Union and are troubling because, under the leadership of President Vladimir Putin, the Kremlin has pursued a strategy whereby European reliance on Russian energy is leveraged into economic and political gains for Moscow. Table 1. The EU’s Dependence on Few Suppliers for Its Oil and Natural Gas Source: Eurostat May 2011, Intra- EU trade excluded. However the assumption that Russia is able to ―out-leverage‖ the EU paradoxical since, after all, by nearly every measure of soft and hard power, Europe would seem to have the upper hand. For instance, the EU has three and half times as many people, spends seven times as much on its military, and has a GDP fifteen times larger than Russia. Even in EURussia energy trade, the balance of power appears to favor the European Union. While the gas the EU gets from Russia comprises 25 percent of European consumption, it also represents a full 70 percent of Russia’s exports (Leonard and Popescu, 2007). Moreover, due to limitations in export infrastructure to any other region, Moscow currently has limited alternatives to the EU market. In that sense, Russia is more dependent on the European market than Europe is on Russian supplies. However, so far Russia is successful in maintaining a high level of dependency in Europe. Moreover, the Kremlin has demonstrated that it has few hesitations in manipulating energy supply volumes in an effort to change a state’s policies. In July 2006, Russian oil pipeline operator Transneft shut down its pipeline to Lithuania shortly after the Lithuanian government sold its highly profitable MazeikiuNafta oil refinery to a Polish firm instead of 21 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Russia’s Lukoil (Egerhofer et al. 2006). Transneft claimed that the shut-down was solely due to technical problems along the route but steadfastly refused all outside offers of assistance in repairing or assessing the damage—and even hinted that the pipeline might remain closed regardless. The July 2006 incident is hardly the first time that Moscow has shut down pipelines in attempt to influence countries it considers to be in its backyard. Several times in 1990 and 1991, Russia cut supplies to the Baltic states in a blatant attempt to quash—and later exact revenge for—their independence movements. Later, in 2003, Transneft shut down its pipeline into Latvia after the Latvian government did not sell its VentspilsNafta export terminal to the Russian company…Transneft Vice President Sergei Grigorev spelled this out very clearly, saying ―Oil can only flow from Russia. [Latvia] can of course sell [the port] to Westerners. But what are they going to do with it? Turn it into a beach?‖ (Lelyveld, 2003). Many Western countries chose to interpret the VentspilsNafta debacle as a normal takeover attempt between two economic entities, ignoring the clear political implications. The energy sector, particularly in the former Soviet Union, lies at the intersection of business and politics. Political motivations clearly lie behind Russian gas cut-offs to non-EU countries like Georgia in 2001 and 2006, as well as recent price hikes to Ukraine, Georgia, and Azerbaijan. The dependence of these and other countries on Russia for such a vital commodity gives the Kremlin tremendous leverage. Moscow further increases its leverage in Europe by acquiring ownership (partial or otherwise) of downstream energy assets. Baran (2008, p. 160) states that in the past two years, Gazprom has signed deals with Eni (Italy), Gasunie (the Netherlands), BASF (Germany), E.ON Ruhrgas (Germany), and Gaz de France, supplementing the company’s already significant holdings in Eastern European countries. Although Gazprom can often buy a stake in downstream assets outright, its preferred method of acquisition is through a trade for access to Russian oil and gas fields— with the Russian energy company naturally always retaining a controlling stake (Cornell, 2008, p. 149). This type of assets-for-access swap is highly beneficial for Russia, since it gains a presence in downstream European markets without giving up majority control over its own resources (Baran, 2008, p. 160). On the other hand Europe’s dependency on Russian gas also undermines many of its foreign policy goals. Specifically, EU members are forced to limit their criticisms of Moscow, lest they be given a raw deal at the bargaining table—or become the next victim of a Kremlin-orchestrated supply disruption. Although mere sermonizing is not likely to be productive, Europe would have a freer hand to criticize Russia’s increasingly tainted record on transparency, responsible governance, and human rights if it were not so dependent on Russian energy. As Europe has begun to explore ways to diversify its supply of energy, the potential role of the Caspian region has inevitably emerged on the agenda (Estrada, 2009). Indeed, the Caspian Sea region is the most obvious candidate to serve as a new and relatively untapped source of natural gas and oil for Europe. Geographically, the region is located in Europe’s vicinity, and both the states of the region and those that link it to Europe are largely friendly to, and seeking greater integration with, Europe. 22 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo The European Energy Needs and Caspian Region Resources A variety of different products and commodities are vital for the functioning of the European economy, but it is energy resources, notably oil and gas, that are of critical importance for the region in the immediate future. As the Table 1 suggests Europe produces only 48% of its energy needs and is a net importer of energy, and according to a European Commission report, two-thirds of the EU’s total energy requirements will be imported by 2020, with natural gas imports estimated to rise to 75% (Tesereteli, 2008, p. 42). The fact that there is a growing demand for energy resources in the world further adds strain to the issue of access. Unlike the United States, China, or Japan, Europe’s geography endows it with a geographic proximity to major sources of energy. Europe currently has three major sources of energy: the Northern Sea region and the potential Norwegian arctic sector from the north, Russia from the east, and the Middle East and North Africa from the south (Larsson, 2008, p. 19). Potential new players to join this list are the Caspian states, which have the potential to help Europe diversify away from its growing dependence on Russian oil and gas. In fact, some of the oil already flows from the Caspian region to European refineries via the Baku-Tbilisi-Ceyhan pipeline and other transportation links. Table 1. EU energy dependency Source: Eurostat May 2011. Energy production includes primary energy product and recovered products Europe faces competition for resources from consumers that are larger and increasingly ambitious. Like in Europe, the United States’ internal production share in the consumption of oil is declining rapidly, which means that U.S. dependence on imported oil will rise and, according to different estimates, may reach 68%, with an increased share of imports coming from the Gulf States (Tsereteli, 2008, p. 45). As the United States began to take pro-active steps toward diversifying its energy supplies in the early 1990s, Central Eurasian resources attracted increasing attention. There is a growing demand for energy in Asia, and in particular in China, and Chinese state-sponsored companies are aggressively pursuing opportunities in Kazakhstan and Turkmenistan at whatever cost. This tactic has worked for them elsewhere in the world, particularly in Africa and Latin America. 23 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo On the backdrop of this strategic energy picture, the security of energy supplies has become a dominant issue for European consumers. According to Olcott (2010: 257) the Caspian Sea and Central Asian resources have a substantial role to play in the future oil supplies of the world. It is estimated that the Caspian will provide at least 10 percent of the expected increased production capacity in the next decade. Based on the assumption that current oil prices will remain stable, oil production from the Caspian may reach 6 million bpd by 2020 (Olcott: 2010: 258-259). The problem of the region is that it is land-locked and requires the development of new infrastructure, which would allow the potential of the region to be fully opened for the region itself, as well as for the broader European, and world energy security (Marketos, 2009: 3). Since maritime connections to the region are limited, the pipeline options for access to these markets are of critical importance for the region. Most often used for transcontinental oil movements, pipelines are critical for landlocked areas. They also complement maritime transportation by providing bypasses or shortcuts. In general, pipelines are the primary option for transcontinental transportation since these are cheaper than railroad, barge, or road alternatives (German, 2008: 65). Pipelines constitute a safe mode of transportation if operating within a nation's borders, or between neighbors such as the United States and Canada, Norway and the EU, or between allied countries such as Azerbaijan, Georgia, and Turkey. On the other hand, pipelines may carry vulnerabilities if crossing politically unstable areas (Estrada, 2009). Moreover, political factors often play significant roles even in relatively stable areas, such as Russia. The political turmoil and price war with Ukraine was an issue of concern for European energy security, as a significant share of Europe’s oil and natural gas supplies from Russia arrive via Ukraine. Previous to the recent crisis over Russian gas, Europe was generally a passive observer of developments in the Central Eurasian region. The Baku-Tbilisi- Ceyhan pipeline (BTC), which connects Azerbaijan’s offshore oil fields to the Turkish Mediterranean port of Ceyhan via Georgia, was developed only through strong U.S. support to the project (German, 2008: 68). With the BTC pipeline now in operation, and the development of Caspian natural gas pipeline shipments through Turkey a reality, Europe is acquiring additional supply routes, without major political efforts on its own part. In addition to existing supply routes, Europe now has a Caspian-Caucasus-Turkey-Mediterranean oil pipeline, which can ship light Caspian crude oil directly to the Mediterranean, and then to the refineries in Southern Europe, avoiding the congested chokepoints (Pipinashvili, 2011: 145). The BTC pipeline stands as an example of how strategic planning, coupled with well-designed policies, and effective implementation can help commercially viable projects materialize. It is obvious that the potential entry of Caspian natural gas to Europe through the South Caucasus and Turkey would help Europe diversify its energy supplies, and to reduce dependence on the state-owned Russian monopoly Gazprom (Kısacık, 2010). Indeed, there appears to be little reason for Europe to access the same resources via Russia, allowing Gazprom as a monopolist to control prices, while making Europe vulnerable to voluntary as well as involuntary supply interruptions. Developing pipelines directly to the Caspian region will perfectly complement major reforms planned in the European gas sector, aiming at the creation of a competitive market of multiple operators with the interest of having different options of delivery routes. Such a competitive market is in the long-term interest of Europe; but it is objectively speaking in Russia’s interest, too (Cornell, 2008, p. 24 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo 154). Diversification of supply routes and gas sector reform in Europe will eventually drive the Russian monopolistic supplier, Gazprom, as well as the Russian gas sector in general, toward much-needed reforms and transparency that will give it sustainability and stability. European Policy Options For Europe, the key to overcoming its dependency on Russia lies on its ability to achieve greater cohesion regarding external energy policy. According to Baran (2008, p. 161), Moscow can only extract favorable conditions when it deals with states bilaterally and plays them against each other. Obviously, a collection of twenty-seven independent states, can never hope to be as strongly coordinated as Russia, a self-described ―sovereign democracy‖ whose government increasingly resembles that of the Soviet state from which it descended. Nevertheless, a more formal framework should be established to streamline EU policies on energy. Several European leaders, particularly the EU Energy Commissioner AndrisPiebalgs have supported such a position in his speech at the 12 th Turkmenistan International Oil and gas Conference (2007). Unfortunately, formalizing a common European energy policy is quite difficult. Member states are far more reluctant to cede sovereignty to Brussels on energy policy than they are on trade tariffs or visa regulations. At the very least, however, European states must realize that working together on issues of energy security, especially when dealing with Russia, will be mutually beneficial in the long term. For one thing, greater competition in the market will help reduce gas prices; the higher prices that Gazprom recently agreed to pay Turkmenistan and Kazakhstan will inevitably be passed on to European consumers. While many states in the European Union may be wary of ―getting tough‖ with Russia, it should hardly be contentious for them to demand reciprocity in their interactions with Russia (Paillard, 2006, p. 66). This would mean increasing transparency, allowing third-party investment in the energy sector, and respecting the rule of law. For a long time, the only efforts undertaken by the EU to move Russia toward greater reciprocity was to passively insist that the country ratify the Energy Charter Treaty and associated Transit Protocol (Baran, 2008, p. 164). These entreaties were repeatedly brushed aside by Moscow. Now, however, Brussels appears to be taking more robust steps to ensure reciprocity. The EU also has the legislative tools at its disposal to prosecute companies like Gazprom or Transneft for their monopoly power (Paillard, 2006, p. 46). In fact, the European Commission’s Directorate-General for Competition has already used its antitrust laws to prosecute Microsoft and block a proposed merger between General Electric and Honeywell (Bobelian, 2013). It is well within its authority to do the same to Gazprom, which is not a simple business monopoly, but a state owned strategic one. It is vital that the EU diversify its energy supply by establishing a Southern Corridor. Thanks to the completion of the Turkey-Greece pipeline, gas can now travel all the way from Azerbaijan to the European Union without traversing Russia. This is an important first step, one that must be supplemented by the Greece-Italy connection, Nabucco, and a trans-Caspian gas pipeline, as well as possibly the White Stream project (Emadi&Nezhad, 2011, p. 29). Building a robust non-Russian-controlled transit route from Central Asia and the Caucasus will break Russia’s leverage, both in Europe and in the Central AsiaCaucasus region. But for this to happen, the EU must demonstrate its firm support for states in that region. After all, these states are much more vulnerable to Russian pressure 25 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo than are most European states. Before leaders like Turkmenistan’s GurbangulyBerdymuhamedov or Kazakhstan’s NursultanNazarbayev will commit to a project such as a trans-Caspian gas pipeline, they must have a firm and steady political commitment from the entire EU. Conclusion: What to do? The EU and its member states can do several things for energy development in the region, and by extension for itself. The first would be to strongly support the Nabucco project, understanding that this commercial project is dependent on political support and cannot be left to market forces alone; since all its competitors are politically supported and not market-oriented, and energy issues are by nature political (Cornell, 2008, p. 153). Second, Europe could invest in supporting the Turkmen-Azerbaijani dialogue, which would be a requirement for a Trans-Caspian linkage. Promising signs of a rapprochement have been observed, but the two states may need some additional incentive to put their differences aside. Supporting joint development fields and ensuring the westward export of its resources would be one such element, which would have the added benefit of de facto building half the Trans-Caspian pipeline (Cornell, 2008, p. 154). Third, Europe could engage directly with the new Turkmen leadership to a higher degree. While far from a democracy, Turkmenistan is exhibiting rapid progress by regional standards, though it has a long road to travel (Piebalg, 2007). Engaging the country, if the process is conceived of correctly by the EU, would encourage this process. Finally, it is clear that when dealing with the region, Europe would be well advised to realize that it is in no position to put conditions on energy- or other relationships. Central Asian states are not devoid of options; quite to the contrary, both Russia and China are in a more advantageous position both politically and geographically in the region (Zhengang, 2009, p. 4). Indeed, should Europe not move rapidly to devise a coherent policy and to increase its engagement with the region, the energy resources of Central Asia are likely to reach Chinese and not European consumers. References Baran, Z. (2008).Developing a Cohesive EU Approach to Energy Security. . In Cornell, S., & Nilsson, N. (eds.) Europe’s Energy Security: Gazprom’s Dominance and Caspian Supply Alternatives (155- 166). Singapore: Central Asia- Caucasus Institute & Silk Road Studies Program. Baskan, D. &Muftuler-Bac, M. (2011). The Future of Energy Security for Europe: Turkey’s role as an Energy Corridor. Middle Eastern Studies, 47(2), 361- 378. Bobelian, M. (2013). EU Antitrust Regulators Continue Tough Line With Microsoft Fine. Forbes. Retrieved March 15, 2013 from, http://www.forbes.com/sites/michaelbobelian/2013/03/06/eu-antitrust-regulatorscontinue-tough-line-with-microsoft-fine/ Cornell, S. E. (2008). Trans-Caspian Pipelines and Europe’s Energy Security.In Cornell, S., & Nilsson, N. (eds.) Europe’s Energy Security: Gazprom’s Dominance and 26 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Caspian Supply Alternatives (141- 154). Singapore: Central Asia- Caucasus Institute & Silk Road Studies Program. Dağdemir, E. U. (2007). AvrupaBirliği'ninEnerjiArzGüvenliğiİçinDışEnerjiPolitikasıArayışları. EskişehirOsmangaziÜniversitesiSosyalBilimlerDergisi, 8(1), 247-268. Egenhofer, C., Grigoriev, L., Socor, V. & Riley, A. (2006). European Energy Security: What Should it Mean? What To Do? European Security Forum Working Paper, 23. Emadi, S. E. &Nezhad, H. (2011).Energy Market for Caspian Sea Oil and its Supply. International Black Sea University Scientific Journal, 5 (2), 21-34. Estrada, A. M. (2009). Central Asia: Moving Towards Alternative Vision of Energy Relations. Elcano Royal Institute, Asia-Pasific/ Central Asia Observatory Working Paper 56. Madrid: Elcano Royal Institute. German, T. C. (2008) Corridor of Power: The Caucasus and Energy Security. Caucasus Review of International Affairs, 2 (2), 64-72. Indexmundi. (2013). Retrieved March 30, 2013, http://www.indexmundi.com/commodities/?commodity=crude-oilbrent&months=300 from International Energy Agency.(2008). World Energy Outlook 2008.Retrieved August 8, 2012 from http://www.iea.org/w/bookshop/add.aspx?id=353. International Energy Agency.(2010). World Energy Outlook 2009.Retrieved August 8, 2012, from http://www.iea.org/W/bookshop/add.aspx?id=388. Kısacık, S. (2010).AvrupaEnerjiGüvenliğiveTürkiye.BilgesamBeyinFırtınası, Sunum 4 (June 29, 2010). Retrieved January 15, 2012 from http://www.bilgesam.org/tr/index.php?option=com_content&view=article&id=753:b eyin-frtnas-avrupa-enerji-guevenlii-ve-tuerkiye&catid=139:toplantlar Larsson, R. L. (2008). Europe and Caspian Energy: Dodging Russia, Tackling China, and Engaging the U.S. In Cornell, S., & Nilsson, N. (eds.) Europe’s Energy Security: Gazprom’s Dominance and Caspian Supply Alternatives (pp. 41-56). Singapore: Central Asia- Caucasus Institute & Silk Road Studies Program. Lelyveld, M. (2003, February 12). Moscow Seeks Takeover of Latvian Oil Port. RFE/RL. Retrieved March 11, 2013, from http://www.rferl.org/content/article/1102205.html. Leonard, M. &Popescu, N. (2007).A Power Audit of EU-Russia Relations.European Council on Foreign Relations.Retrieved November 21, 2012 from [http://ecfr.eu/page/-/documents/ECFR-EU-Russiapower-audit.pdf]. Marketos, T. N. (2009). Eastern Caspian Sea Energy Geopolitics: A Litmus Test for the U.S. – Russia – China Struggle for the Geostrategic Control of Eurasia. Caucasian review of International Affairs, 3 (1), 2-19. 27 �International Conference on EconomicandSocialStudies (ICESoS’13), 10-11 May, 2013, Sarajevo Norling, N. (2008). The Nabucco Pipeline: Reemerging Momentum in Europe’s Front Yard. In Cornell, S., & Nilsson, N. (eds.) Europe’s Energy Security: Gazprom’s Dominance and Caspian Supply Alternatives (pp. 127- 140). Singapore: Central Asia- Caucasus Institute & Silk Road Studies Program. Olcott, M. B. (2010). Central Asia’s Oil and Gas Reserves: To Whom Do They Matter? Global Journal of Emerging M arket Economies, 2 (3), 257-300. Paillard, C. A. (2006). Rethinking Russia : Russia and Europe’s Mutual Energy Dependence. Journal of International Affairs, 63 (2), 65-84. Piebalg, A. (2007). Turkmenistan and the EU: Why we need an increased co-operation in the Energy Field? Speech at the 12th Turkmenistan International Oil and Gas Conference, Ashgabat, Turkmenistan. 15 November 2007. Retrieved March 7, 2013 from http://europa.eu/rapid/press-release_SPEECH-07-720_en.htm. Pipinashvili, D. (2011). Sino-Russian Geopolitical Interest in Central Asia and South Caucasus. Bulletin of the Georgian National Academy of Sciences, 5 (2), 144-148. Sokolsky, R. &Charlick-Pailey, T. (1999). Caspian Security: A mission too far? Rand Cooperation. Washington D.C.: Rand Cooperation. Retrieved August 7, 2012 from http://www.rand.org/pubs/monograph_reports/MR1074.html. Tsereteli, M. (2008) The Black Sea/ Caspian Region in Europe’s Economic and Energy Security.In Cornell, S., & Nilsson, N. (eds.) Europe’s Energy Security: Gazprom’s Dominance and Caspian Supply Alternatives (41-56). Singapore: Central AsiaCaucasus Institute & Silk Road Studies Program. Zhengang, M. (2009).A Brief review of current international situation and China’s Diplomacy. China International Studies, 15 (2), 4-15. 28 � 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. 1474 Title A name given to the resource Europe’s Energy Security and Caspian Oil and Natural Gas Author Author TOLGA TURKER, Ahmet Abstract A summary of the resource. For the countries in the Caspian region, whether they have been endowed with large resources of oil and natural gas or not, the energy politics and energy security has been at the heart of their efforts to build sovereign and prosperous states. To this end, oil and gas producing countries in the region have established arrangements governing the exploration and transportation of their resources to world markets as a central element of their foreign policies, whereas consumer countries carefully crafted their levels of dependence on energy-endowed powers since it is vitally important in determining their ability to formulate their domestic and foreign policies independently. For Europe, on the other hand, the discovery of the importance of energy security has been more recent, and mainly linked to the increasingly assertive policies that the Russian government and its monopolistic subsidiary, Gazprom, have adopted over the past years. As the European Union countries have begun to realize their problem and look for ways to diversify its supply of energy, the potential role of the Caspian region has inevitably emerged on the agenda. However, member countries seem to pursue their own energy policy, which only decrease the overall security of the Union and limit the EU’s foreign policy options. Apart from this observation, this project explores several aspects of European energy security particularly its dependence on Russia and the role of Caspian states as a source of alterative supply and argue that European countries must establish a European level energy strategy. Accordingly this study will unfold in four sections. First section will review Europe’s energy vulnerability along with the similarities between European and Caspian states in terms of energy politics. Second section will provide an analysis of emerging Russian energy diplomacy and the role of Gazprom in the light of recent developments. Third section will put forward the Caspian and the Black Sea as a future hub of energy for Europe and will discuss the role and importance of Nabucco and Trans-Caspian pipelines as the two most important infrastructure projects. Final section will critically review the EU’s approach to energy security and discuss the need to develop a more cohesive EU approach towards Caspian countries as well as issues of energy security. Even though certain individual decisions can be made by member states alone, these decisions should be made in accordance with the greater strategy goals set by the European Union. Keywords: European Union, Caspian Sea, Energy, Security. 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/330138e930bf1dc48a493eebfe2305c7.pdf 540f834119fecc503a3523088e6683a9 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo The Use of Statistics in the Agricultural Sector in the Province of Kutahya Süleyman Tiryaki Kütahya Vocational School of Social Sciences, Kütahya, Turkey suleyman.tiryaki@dpu.edu.tr Murat Kurt Kütahya Vocational School of Social Sciences, Kütahya, Turkey murat.kurt@dpu.edu.tr Kenan Alp Balıkesir University Manyas Vocational School, Balıkesir, Turkey kenanalp83@gmail.com Aydın Kahraman Balıkesir University Havran Vocational School, Balıkesir, Turkey aydin1975@gmail.com Turkey has a structure that is growing and developing with each passing day in the agricultural sector. Because consciousness occurred that agriculture cannot be done with daily approaches, but with strategic planning and approaches. Turkey is in the 7th range the list of world agricultural economies and the 1st in Europe range in terms of the size of the agricultural economy. Kütahya is one of the cities that affect the results significantly. Kütahya has been one of the major centers in the agricultural field from past to present. The world's first stock exchange was established in the town of Çavdarhisar that has 4900 hectares of agricultural area. The reason for this is the period between 0 and 1000, agricultural and livestock is being done widely in this area. A questionnaire is prepared to determine whether the statistics, which is very important nowadays, is used enough or not in Kütahya. The questionnaire sent to 35 companies via fax, e-mail and personally, by who are working in agricultural sector. 22 of these companies filled out our questionnaire. The statistics using level and R&D activities were asked to the companies with 8 items in this questionnaire. The obtained data were entered to the packaged software and then analyzed with these data. The results of this analysis are interpreted. The companies believe that the use of statistics is important for developing but important part of the companies has not recorded the statistics of their companies till now. Also they do not follow the TÜİK istatistics published by Ministry of Agriculture. Keywords: Statistics, Research & Development (R&D), Agriculture. 263 � 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. 1670 Title A name given to the resource The Use of Statistics in the Agricultural Sector in the Province of Kutahya Author Author TIRYAKI, Suleyman KURT, Murat ALP, Kenan KAHRAMAN, Aydin Abstract A summary of the resource. Turkey has a structure that is growing and developing with each passing day in the agricultural sector. Because consciousness occurred that agriculture cannot be done with daily approaches, but with strategic planning and approaches. Turkey is in the 7th range the list of world agricultural economies and the 1st in Europe range in terms of the size of the agricultural economy. Kütahya is one of the cities that affect the results significantly. Kütahya has been one of the major centers in the agricultural field from past to present. The world's first stock exchange was established in the town of Çavdarhisar that has 4900 hectares of agricultural area. The reason for this is the period between 0 and 1000, agricultural and livestock is being done widely in this area. A questionnaire is prepared to determine whether the statistics, which is very important nowadays, is used enough or not in Kütahya. The questionnaire sent to 35 companies via fax, e-mail and personally, by who are working in agricultural sector. 22 of these companies filled out our questionnaire. The statistics using level and R&D activities were asked to the companies with 8 items in this questionnaire. The obtained data were entered to the packaged software and then analyzed with these data. The results of this analysis are interpreted. The companies believe that the use of statistics is important for developing but important part of the companies has not recorded the statistics of their companies till now. Also they do not follow the TÜİK istatistics published by Ministry of Agriculture. Keywords: Statistics, Research & Development (R&D), Agriculture. 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/1a5844dd51c8f7a33cb74c77c55f3aca.pdf 67c1c9375d6003f8755a3ee36d5d2215 PDF Text Text International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo Financial Crises and Derivatives Market: An Application of Factor Analysis Bilgehan Tekin Çankırı Karatekin University, Çankırı, Turkey bilgehantn@hotmail.com Yusuf Gör Çankırı Karatekin University, Çankırı, Turkey yusufgor23@gmail.com Countries that come even closer with each other every passing day, both economically and socially, went through and have been going through various financial crises in the past and present centuries. The close relationships of countries cause a crisis suffered by one country to expand within a short time and infect other countries. With the collapse of the Bretton Woods system and the transition from fixed rate policy to floating rate policy, the risk involved in inflation and interest rates increased, and derivatives were brought forward as one of the protection methods against the increasing risk ratio. The derivatives markets, which expanded by means of structured products used in 1990s, reached huge sizes, leading to a more risky financial structure. Although protection against risks is the main objective, derivatives offer speculative profit and arbitrage opportunity to their users. Intensely used for investment purposes, derivatives create bubble economies when they reach high volumes and influence crises by expanding the financial risk environment. The purpose of this study is to analyze financial crises, the effective factors on the emergence of crises and the derivatives market, and to reveal their inter-relations. In this study, firstly, the financial crises suffered throughout history will be mentioned, and, then, the financial crises that broke out since the periods when derivatives were started to be used will be addressed. To this end, focus will be on derivatives risks and the five most significant financial crises experienced in late history will be emphasized by analyzing the trading volumes realized in the derivatives market during the crisis periods; the 2008 global financial crisis, the 2001 economic crisis in Turkey, the 2001 crisis in Argentine, the 1997 East Asian Financial crisis and the 1994 economic crisis in Mexico. Data will be gathered from online 63 �International Conference on Economic and Social Studies, 10-11 May, 2013, Sarajevo reports of the related countries, public records, Central Banks, IMF and World Bank reports and previous studies carried out on the same subjects. The study will start with a literature review that involves examining the financial crises and identifying the variables accepted as the leading indicators of these crises. Then these variables will be converted into less number of groups of variables, by using factor analysis which is a quantitative data reduction method. This new leading indicator factor groups will be compared for each crisis, and a model will be suggested on the basis of possible differences and similarities. Finally, focus will be on how derivative instruments affect crises and their effects on the created model. This study aims at uncovering similar or different aspects of leading indicators during each crisis period, by examining the five most significant financial crises suffered recently, and determining whether derivatives are a preventive or triggering factor on the same crises. Keywords: Financial Crisis, Bretton Woods System, Leading Indicators, Derivatives, Factor Analysis. 64 � 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. 1503 Title A name given to the resource Financial Crises and Derivatives Market: An Application of Factor Analysis Author Author TEKIN, Bilgehan GOR, Yusuf Abstract A summary of the resource. Countries that come even closer with each other every passing day, both economically and socially, went through and have been going through various financial crises in the past and present centuries. The close relationships of countries cause a crisis suffered by one country to expand within a short time and infect other countries. With the collapse of the Bretton Woods system and the transition from fixed rate policy to floating rate policy, the risk involved in inflation and interest rates increased, and derivatives were brought forward as one of the protection methods against the increasing risk ratio. The derivatives markets, which expanded by means of structured products used in 1990s, reached huge sizes, leading to a more risky financial structure. Although protection against risks is the main objective, derivatives offer speculative profit and arbitrage opportunity to their users. Intensely used for investment purposes, derivatives create bubble economies when they reach high volumes and influence crises by expanding the financial risk environment. The purpose of this study is to analyze financial crises, the effective factors on the emergence of crises and the derivatives market, and to reveal their inter-relations. In this study, firstly, the financial crises suffered throughout history will be mentioned, and, then, the financial crises that broke out since the periods when derivatives were started to be used will be addressed. To this end, focus will be on derivatives risks and the five most significant financial crises experienced in late history will be emphasized by analyzing the trading volumes realized in the derivatives market during the crisis periods; the 2008 global financial crisis, the 2001 economic crisis in Turkey, the 2001 crisis in Argentine, the 1997 East Asian Financial crisis and the 1994 economic crisis in Mexico. Data will be gathered from online reports of the related countries, public records, Central Banks, IMF and World Bank reports and previous studies carried out on the same subjects. The study will start with a literature review that involves examining the financial crises and identifying the variables accepted as the leading indicators of these crises. Then these variables will be converted into less number of groups of variables, by using factor analysis which is a quantitative data reduction method. This new leading indicator factor groups will be compared for each crisis, and a model will be suggested on the basis of possible differences and similarities. Finally, focus will be on how derivative instruments affect crises and their effects on the created model. This study aims at uncovering similar or different aspects of leading indicators during each crisis period, by examining the five most significant financial crises suffered recently, and determining whether derivatives are a preventive or triggering factor on the same crises. Keywords: Financial Crisis, Bretton Woods System, Leading Indicators, Derivatives, Factor 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 2303-4564