Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market

Muzir, Erol; Kizil, Cevdet; Ceylan, Burak

doi:10.3390/jrfm14030125

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Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market

Erol Muzir

^1,*

Cevdet Kizil

and

Burak Ceylan

Department of Management, Faculty of Political Science, Istanbul Medeniyet University, Istanbul 34000, Turkey

School of Graduate Studies, Istanbul Medeniyet University, Istanbul 34000, Turkey

Author to whom correspondence should be addressed.

Academic Editors: Michael McAleer and Thanasis Stengos

J. Risk Financial Manag. 2021, 14(3), 125; https://doi.org/10.3390/jrfm14030125

Received: 1 February 2021 / Revised: 5 March 2021 / Accepted: 10 March 2021 / Published: 16 March 2021

(This article belongs to the Special Issue Feature Papers on Applied Economics and Finance)

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Abstract

This paper aims to develop some static and conditional (dynamic) models to predict portfolio returns in the Borsa Istanbul (BIST) that are calibrated to combine the capital asset-pricing model (CAPM) and corporate governance quality. In our conditional model proposals, both the traditional CAPM (beta) coefficient and model constant are allowed to vary on a binary basis with any degradation or improvement in the country’s international trade competitiveness, and meanwhile a new variable is added to the models to represent the portfolio’s sensitivity to excess returns on the governance portfolio (BIST Governance) over the market. Some robust and Bayesian linear models have been derived using the monthly capital gains between December 2009 and December 2019 of four leading index portfolios. A crude measure is then introduced that we think can be used in assessing governance quality of portfolios. This is called governance quality score (GQS). Our robust regression findings suggest both superiority of conditional models assuming varying beta coefficients over static model proposals and significant impact of corporate governance quality on portfolio returns. The Bayesian model proposals, however, exhibited robust findings that favor the static model with fixed beta estimates and were lacking in supporting significance of corporate governance quality. View Full-Text

Keywords: static and conditional asset-pricing models; corporate governance quality; international trade capability; robust linear regression; Bayesian regression; Borsa Istanbul

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Muzir, E.; Kizil, C.; Ceylan, B. Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market. J. Risk Financial Manag. 2021, 14, 125. https://doi.org/10.3390/jrfm14030125

AMA Style

Muzir E, Kizil C, Ceylan B. Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market. Journal of Risk and Financial Management. 2021; 14(3):125. https://doi.org/10.3390/jrfm14030125

Chicago/Turabian Style

Muzir, Erol, Cevdet Kizil, and Burak Ceylan. 2021. "Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market" Journal of Risk and Financial Management 14, no. 3: 125. https://doi.org/10.3390/jrfm14030125

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Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market

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