The Center for Analytical Finance (CAFIN) publishes two new working papers on the website.
Adding to the center's cutting-edge research is "Uncertainty and Disagreement Measures from Treasury Auctions and Investment Activity" by Orcan Çörtük, Mustafa Haluk Güler and Tandoğan Polat. This is the 15th paper the center has published.
The abstract reads: "In this study, we propose a new methodology to extract the expected real interest rate uncertainty and disagreement measures with the use of micro data on Turkish treasury inflation indexed bond auctions. We argue that these newly formed indicators do not have the problems associated with other model and survey based uncertainty and disagreement measures. We also examine the effects of real interest rate uncertainty on investment by comparing not only the measures commonly used in literature but also the new ones that we construct. Estimation results indicate that real interest rate uncertainty has a positive effect on private investment. This is at odds with the effects of model based disagreement measures on private investment." The working paper can be downloaded here.
"Dynamic Model of Firm Valuation: A New Methodology and its Empirical Validity" by Natalia Lazzati and Amilcar A. Menichini is the 14th paper the center has published.
The abstract reads: "This study derives a dynamic version of the dividend discount model and assesses its empirical validity. The valuation method we propose can be easily implemented and uses widely available financial data. We find that our model produces equity value estimates that are, on average, very close to market prices, and explains a large proportion of the variation observed in contemporaneous share prices. However, we also find temporary deviations between the stock prices and model estimates that can be economically exploited by a simple buy-and-hold portfolio strategy. The strategy we implement earns on average 22%, 37%, and 49% returns after one, two, and three years of portfolio formation, respectively." The working paper can be downloaded here.
All working papers, currently 15 in total, can be viewed on the CAFIN website here. The Center for Analytical Finance is a group of researchers whose aim is to solve real-world problems of finance in a globalized financial system.