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Article Citation - WoS: 1Citation - Scopus: 2Controlling Heterogeneous Structure of Smooth Breaks in Panel Unit Root and Cointegration Testing(Springer, 2023) Omay, Tolga; Iren, PerihanThis study aims to show the consequences of a restrictive homogeneity assumption of frequency in heterogeneous panel unit root and cointegration testing with Flexible Fourier Form. For this purpose, we use a simple panel unit root and residual based cointegration test with Flexible Fourier Form in a heterogeneous frequency setting using a bootstrap algorithm. The power of the test statistics and empirical analysis results indicate that failing to take into account a heterogeneous frequency may lead to misleading inferences, thereby leading to misspecified tests and erroneous conclusions concerning the stochastic behavior of the data in the panel sample.Article Citation - WoS: 47Citation - Scopus: 47Global Risk Aversion and Emerging Market Return Comovements(Elsevier Science Sa, 2018) Demirer, Riza; Omay, Tolga; Yuksel, Asli; Yuksel, AydinUtilizing the recently developed measure of global risk aversion by Xu (2017), we show that global risk aversion is a significant determinant of international equity correlations, consistently across all emerging markets examined. The positive effect of risk aversion on emerging market comovements is particularly strong for South Africa and Turkey and is consistent with contagion effects. The results underscore the importance of non-cash flow shocks in models of contagion and portfolio risk. (C) 2018 Elsevier B.V. All rights reserved.Article Citation - WoS: 7Citation - Scopus: 6Oil and Stock Prices: New Evidence From a Time Varying Homogenous Panel Smooth Transitionvecmfor Seven Developing Countries(Wiley, 2022) Ceylan, Resat; Ivrendi, Mehmet; Shahbaz, Muhammed; Omay, TolgaThis paper investigates the relationship between international oil price and stock prices applying the time varying causality testing over the period of 2000(M1)-2017(M3). The panel unit root and panel cointegration tests considering cross-section dependence are also employed. A time varying panel smooth transition vector error correction (TV-PSTRVEC) model is a developed and estimated for testing the presence of non-linear short-run and long-run causality, and cointegrating relationship between stock and oil prices. The empirical findings indicate that short and long-run causalities between oil price and stock prices are time-dependent. Moreover, oil price cause stock prices in the long-run. In the short-run, neutral effect exists between oil price and stock prices. These two findings are evidence of a strong exogeneity of oil price in time-dependent regimes which is also supporting the recent arguments and empirical findings.Article Citation - WoS: 1Citation - Scopus: 1A Unit Root Test With Markov Switching Deterministic Components: A Special Emphasis on Nonlinear Optimization Algorithms(Springer, 2023) Omay, Tolga; Corakci, AysegulIn this study, we investigate the performance of different optimization algorithms in estimating the Markov switching (MS) deterministic components of the traditional ADF test. For this purpose, we consider Broyden, Fletcher, Goldfarb, and Shanno (BFGS), Berndt, Hall, Hall, Hausman (BHHH), Simplex, Genetic, and Expectation-Maximization (EM) algorithms. The simulation studies show that the Simplex method has significant advantages over the other commonly used hill-climbing methods and EM. It gives unbiased estimates of the MS deterministic components of the ADF unit root test and delivers good size and power properties. When Hamilton's (Econometrica 57:357-384, 1989) MS model is re-evaluated in conjunction with the alternative algorithms, we furthermore show that Simplex converges to the global optima in stationary MS models with remarkably high precision and even when convergence criterion is raised, or initial values are altered. These advantages of the Simplex routine in MS models allow us to contribute to the current literature. First, we produce the exact critical values of the generalized ADF unit root test with MS breaks in trends. Second, we derive the asymptotic distribution of this test and provide its invariance feature.Article Citation - WoS: 10Citation - Scopus: 11Is There Convergence in Renewable Energy Deployment? Evidence From a New Panel Unit Root Test With Smooth and Sharp Structural Breaks(Pergamon-elsevier Science Ltd, 2023) Corakci, Aysegul; Omay, TolgaThis study examines whether the contribution of renewable energy to the total primary energy supply converges in a panel of 24 OECD countries over the period 1960-2020. To this end, a new panel unit root test that allows for both sharp and smooth breaks is proposed to test for the stochastic convergence hypothesis. Although renewable energy convergence is not rejected when the newly proposed test is applied to the full panel of OECD countries, it found only moderate support within the members of the panel using a sequential panel selection methodology. In fact, in two high-income OECD countries, the contribution of renewable energy to the primary energy supply shows no sign of convergence: Poland and Iceland. Therefore, the renewable energy shares seem to be converging to a common steady state in only a group of OECD countries over the long run. This uneven pattern of convergence, in turn, suggests that the OECD countries are still far away from developing a common sustainable renewable energy target, calling for urgent international policy cooperation to encourage the divergent econo-mies to seek out the menu of policies that ensure the worldwide success of renewable energy transformation.Article Citation - WoS: 5Citation - Scopus: 5Historical Environmental Kuznets Curve for the Usa and the Uk: Cyclical Environmental Kuznets Curve Evidence(Springer, 2024) Omay, Tolga; Yildirim, Julide; Balta-Ozkan, NazmiyeHuman activities, including population growth, industrialization, and urbanization, have increasingly impacted the environment. Despite the benefits of economic growth to individual welfare, its negative environmental consequences necessitate a thorough assessment. The environmental Kuznets curve (EKC), positing an inverted U-shaped relationship between income per capita and environmental degradation, has been extensively studied since its proposition by Grossman and Krueger (Environmental impacts of a North American free trade agreement, National Bureau of Economic Research working paper, 1991. https://doi.org/10.3386/w3914). However, empirical evidence on the validity and shape of the EKC varies due to methodological differences, country-specific dynamics, and other factors. Examining the historical growth paths of individual countries helps explain the mixed findings in empirical EKC research. Long-term data allow researchers to determine the EKC's shape and turning points, aiding policymakers in devising appropriate environmental policies for each economic growth cycle within the framework of global environmental governance. Accordingly, this study contributes to the literature by taking a historical perspective on the EKC, focusing specifically on the United States and the United Kingdom. Drawing on data spanning from 1850, we employ advanced econometric techniques, including fractional frequency flexible Fourier form Dickey-Fuller-type unit root tests and structural breaks unit root tests, to overcome limitations of traditional linearized EKC estimations. Moreover, the classical polynomial regression approach is employed to model the long-term cycles based on the scatterplot inspection of per capita carbon dioxide (CO2) and per capita GNP series. Contrary to conventional expectations, our empirical findings do not support the existence of a clear inverted U-shaped EKC relationship between CO2 emissions and economic growth for either country. Instead, our analysis reveals the presence of multiple regimes, indicating a cyclical pattern where economic growth affects environmental quality with varying severity over time. Furthermore, we demonstrate proper modeling techniques for the EKC, highlighting the importance of identification and misspecification tests. Our study identifies cyclical EKC patterns for both the UK and the USA, with the UK exhibiting two cycles and the USA exhibiting three, shaped by varying economic, social, and technological contexts. By revealing the nuances of the economic growth-environmental degradation nexus for these early developer countries, our study provides valuable insights for policymakers seeking to devise evidence-based and environmentally sustainable growth policies within the framework of global environmental governance. These findings underscore the importance of considering historical context and structural changes when analyzing the EKC, providing valuable insights for policymakers aiming to design adaptive and sustainable economic growth strategies.Article Citation - WoS: 1Citation - Scopus: 1Re-Examining the Real Interest Rate Parity Hypothesis Under Temporary Gradual Breaks and Nonlinear Convergence(Springer Heidelberg, 2023) Hasanov, Mubariz; Omay, Tolga; Abioglu, VasifThis paper investigates the real interest parity hypothesis by testing stationarity of real interest rate differentials for 52 countries with respect to the USA. Taking account of the fact that both asymmetric adjustment and gradual temporary breaks may better characterize the dynamics of real interest rate differentials, we propose a new test that allows for two temporary shifts together with asymmetric adjustment towards the equilibrium. We employ the newly proposed test procedure along with the conventional ADF test as well as nonlinear KSS and OSH tests to examine stationarity of real interest rate differentials. Among the main results, we find that the newly proposed unit root test procedure highly outperforms the existing unit root tests in terms of rejecting the null hypothesis of unit root. Our results suggest that real interest rate differentials can be characterized by a stationary process with asymmetric adjustment around gradual and temporary shifts of mean.Article Citation - WoS: 20Citation - Scopus: 20Testing for Unit Roots in Dynamic Panels with Smooth Breaks and Cross-Sectionally Dependent Errors(Springer, 2018) Omay, Tolga; Hasanov, Mubariz; Shin, YongcheolWe develop the extended unit root testing procedure for dynamic panels characterised by slowly moving trends (SMT) and cross-section dependence (CSD). We allow SMT to follow the smooth logistic transition function and the components error terms to contain the unobserved common factors. We propose the two panel unit root test statistics, one derived by the extended common correlated effects (CCE) estimator and the other based on the Sieve bootstrap. We have conducted extensive simulation exercises and document that the failure to take into account SMT and CSD may lead to misleading inference. On the other hand, we find that both bootstrap and CCE-based tests maintain good power properties in small samples in the presence SMT and CSD. We apply our proposed tests to real interest rates for 17 OECD countries and find overwhelming evidence in favour of the Fisher hypothesis.Article Citation - WoS: 9Citation - Scopus: 9Market Development and Market Efficiency: Evidence Based on Nonlinear Panel Unit Root Tests(Routledge Journals, Taylor & Francis Ltd, 2019) Aktan, Ceyda; Iren, Perihan; Omay, TolgaThis study tests the weak form market efficiency of 32 European stock markets. Utilizing monthly data from June 2006 to June 2017, six different, newly developed nonlinear panel root tests were applied in three different groups of European markets: Frontier, Emerging and Developed. The results show that there is a meaningful relationship between different levels of economic development and the weak form market efficiency. Considering the nonlinear structure of the stock market indices, use of linear models might lead to wrong conclusions regarding market efficiency. Using several nonlinear panel root tests, the results of this study shed more light on the true data generating process of the stock market indices and more appropriately model market efficiency.Article Citation - WoS: 4Citation - Scopus: 4Examining the non-linear stochastic behavior of the European energy market: evidence from nonlinear unit root tests(Taylor & Francis inc, 2022) Aktan, Ceyda; Omay, Tolga; Sahin, Eyyup EnsariStock market efficiency has been one of the most investigated topics of the last century. Knowing the efficiency of a market has major implications for both investors and policymakers, as a perfectly efficient market eliminates any arbitrage opportunity and the possibility of actually beating the market. For this reason, this study aims to examine the weak-form market efficiency of the European energy markets using linear and nonlinear unit root tests for the period covering February 2012 to April 2021. The results indicated that while the Augmented Dickey-Fuller test captured the stationarity in only Austria's Oil, and Gas index, using nonlinear tests showed stationarity in 17 of the 20 indices tested. Overall, the European Energy Market can be considered inefficient under the weak form of the Efficient Market Hypothesis. Therefore, there is an indication of profitable arbitrage opportunities among energy stocks. Signs of stationarity also suggest that shocks to energy stocks will have temporary effects. Energy markets of Austria, Finland, France, Greece, Italy, Netherlands, Russia, Spain, Sweden, and the United Kingdom, for this reason, could benefit from policy changes to support increased information flow to achieve more transparency and utilize better trading technologies.
