Reducing greenhouse gas emissions not only lowers expected damages from climate change but also reduces the risk of catastrophic impacts. However, estimates of the social cost of carbon, which measures the marginal value of carbon dioxide abatement, often do not capture this risk reduction...

This work develops a simple framework to analyse how financial intermediaries' balance sheet problems combined with financial guarantees make an economy more vulnerable to financial crises. A 'double default' problem - that is, the default of financial intermediaries on their debt repayments and...

We develop an institutional framework for central banks that try to pursue a stability-oriented monetary policy with the strategy of exchange rate targeting. Recent experience shows that a crucial element of this approach is to avoid destabilising capital inflows. Policy makers can exert...

We develop an institutional framework for central banks that try to pursue a stability-oriented monetary policy in open-economies by directly targeting the exchange rate. Our main intention is to design a framework which avoids excessive capital inflows that can be regarded as a main cause of...

Valuing a firm using the discounted cash flow method (DCF) requires the joint determination of the market value of its equity (MVE) together with the equity risk premium (ERP) the firm should earn, since the latter is part of the discount rate used in the calculation of the MVE. This paper...

We study the pricing of political uncertainty in a general equilibrium model of government policy choice. We find that political uncertainty commands a risk premium whose magnitude is larger in poorer economic conditions. Political uncertainty reduces the value of the implicit put protection...

This paper studies the predictability of returns in the French stock market. It provides an analysis of predictable components of monthly common stock returns. We study a single-beta conditional model and we show that stock market risk premium is variable over time and is important for capturing...

Basel III classifies government debt as risk free while actual interest rates in the European Union (EU) show large differences not only because of liquidity but mainly because of the risk of default, as also reflected in credit default swaps. Curiously such debt defaults may not happen so that...

CAPM is one of the subjects that constitute fundamentals of modern finance theory. Although the research that test validity of CAPM give conflicting results, CAPM is widely used especially in portfolio investments and capital budgeting. In this study, we test validity of the CAPM in Istanbul...