Research Interests:
Systemic Risk, Market Microstructure, Banking,     Secondary:  Money Markets,
with the emphasis on  CCPs, Over-the-counter derivatives and markets, Stress Testing, Capital Adequacy, Collateral, Leverage, Liquidity, Networks, Contagion, Information and Learning, Procyclicality, Amplification Mechanisms, Asset Bubbles, Endogenous Risk, Market & Credit Risks, Model Risk, as well as Principal-Agent Problems & Strategic Interactions, Hedge Funds, Corrective Tax, Distributed Ledgers, Financial Fragility/Crises,
with the aim to contribute to  Macro-prudential Policy, Financial Stability & Regulation, Quantitative Risk Management.

Work in Progress

Karimalis, E., Odabasioglu, A., "Modelling spill-over effects among CCP clearing members."

Anderson, R., Hoffmann, P., Langfield, S., Odabasioglu, A., "Systemic Risk and Risk Management in the Interest Rates Derivatives Markets: Network Analyses of the Exposures and Trades for Major Banking Groups using EMIR/DTCC Dataset*."

Danielsson, J., Odabasioglu, A., Saltoglu, B., "Anatomy of a Market Crash revisited: A Market Microstructure Analysis of the Turkish Overnight Liquidity Crisis."

Working Papers

Odabasioglu, A. (2017), "Informed Trading Uncertainty, Amplification Mechanisms and Persistent Price Deviations."
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This paper belongs to the line of research stemming from my interest in understanding how frictions and financial institutions influence the price formation process, liquidity and the way financial markets function, with emphasis on financial stability and regulation. It provides a generalized, rational framework and analyzes non-fundamental asset price deviations (anomalies) and their evolution (their directions, magnitudes and persistence), and it proposes a parsimonious, information-based explanation for them when traders are exposed to forced-trades (e.g. fire-sales, fire-purchases). I do so within an information-setting that allows a second dimension of uncertainty (in the fraction of forced-trades, in addition to the one in the asset value). When the forced-trades cannot be well differentiated from the trades that are actually associated with the change in the asset's fundamentals, we observe (even when a fundamental reason is absent) price deviations. The model predicts under-(over-) shooting in the prices when the fraction of unobserved fire-sales is initially under-(over-) estimated by the market maker. When the constrained traders are the informed traders, further price deviations are observed due to an information-based amplification mechanism, and the price deviations can persist, as opposed to reversal (correction). In that way, this paper aims to explain persistent price deviations (e.g. crashes) following high-leverage periods, by dynamically modeling the mechanism producing the forced-trades via margin trading, where margin calls arise due to adverse price changes. Since (potentially system-wide) destabilizing financial positive feedback mechanisms and endogenous shocks, both of which are components of the systemic risk, are involved in the problem I analyze, I also discuss policy issues that could improve the financial stability in the markets by mitigating the destabilizing effects of forced trades.

Gibson, R., Odabasioglu, A. and Padovani, M. (2018), "The Determinants of Banks' Lobbying Activities before and during the 2007-2009 financial crisis."
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Lobbying expenditures within the financial sector have more than doubled over the period before and during the 2007-2009 financial crisis, moving from $233mn in 2000 to over $472mn in 2010. Almost a decade after the financial crisis, substantial revisions of the Volcker rule (an important provision of the Dodd-Frank bill) are currently under way, which may hint to banks' success in their ongoing lobbying efforts since the rule's announcement in 2010, as well as to their increased incentives recently for getting involved in the new regulators' objective of streamlining the rule.
In this paper, we examine the relationship between banks' lobbying activities, their size, financial strength, sources of income, and agency problems, before and during the 2007-2009 financial crisis. First, we find that banks are more likely to lobby when they are larger, have more vulnerable balance sheets, are less creditworthy, and have more diversified business profiles. We next find that banks engaged in non-traditional businesses, e.g. securitization and trading, or in highly regulated businesses, e.g. insurance, hire more lobbyists and spend larger amounts on lobbying. We also show that a bank's agency conflicts can explain its more intense lobbying efforts. Finally, we observe that the announcement of the Dodd-Frank bill led to increased lobbying by banks with higher trading revenues.

Odabasioglu, A., Uthemann, A. (2016), "Taxing Financial Transactions as a Policy Instrument: Implications for Market Quality."

This paper examines the highly topical European Financial Transaction Taxation debate from the standpoint of market microstructure & systemic risk literatures. It is intended to provide an assessment of the suitability of financial transaction tax (FTT) as a policy tool, especially by means of its impact on market quality; aspects such as volatility, liquidity, informational efficiency and price discovery are the main interests. First, it lays out the theoretical arguments that are brought forward to justify the use of transaction tax as a corrective tool, for instance, curbing short-term speculation conducted by high-frequency traders. Then, it extends the list of externalities at which such an intervention could be targeted, and discusses also alternative policy instruments. Next, it provides an overview of the empirical evidence on the impact of transaction tax on market quality. Then, it considers concrete design questions that have to be addressed, should one attempt to implement an FTT; these include market maker exemptions and tax avoidance possibilities. Furthermore, it draws attention to the difficulty in designing the taxation of derivatives, and points out that, the introduction of financial transaction tax could result in systemic risks to build-up, for instance, by incentivizing participants to replace the financial instruments subject to the tax with the untaxed ones (in the spirit of regulatory arbitrage) at a market-wide level. Finally, the paper concludes with an illustration of these difficulties using the proposal for a harmonized European FTT as an example.

Odabasioglu, A. (2016), "Managerial Strategic Investment with Agency and Competition in a Real Options Framework."
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This paper examines the investment behavior of a managerial firm facing competition by developing an investment timing model within the real option exercise game framework under incomplete information. The particular research question of concern is whether the competition serves as an incentive mechanism for the agency problem. Product market competition is modeled in a full preemption fashion in the sense that the first mover captures the whole market and the second mover's option to invest becomes worthless. The delegation of investment decision to a manager creates an agency conflict since the true quality of the underlying project is observed privately by the manager which gives her the scope for diverting part of the cash flows for private benefits. Thus, an optimal contract has to be designed which induces the agent to truthfully reveal the project's quality and exercise the option at a strategically optimal trigger level. The results indicate that while competition tends to induce (over-) early-investment for both types of the project, the agency problem calls for delaying the investment for the low quality project, with the overall effect being dependent on the relative importance of preemption threat to the agency conflict. Accordingly, the existence of preemption threat can mitigate the (social) inefficiency stemming from agency conflict for the low quality project. Furthermore, competition provides additional incentives to the manager for truth-telling and as a result allows the owner to provide less (informational) rents to the manager. Finally, allowing for positive correlation between the competing firms' underlying project values has two consequences: First, while the amount of investment timing adjustment required due to competition decreases for the low quality project, the same increases for the high quality project. Second, the presence of correlation supplies (also) additional incentives to the manager for truth-telling and it suppresses the distortion in the low quality project's exercising trigger that originally stems from the agency problem.

*EMIR/DTCC Dataset is a collection of highly granular data which the European Systemic Risk Board (ESRB) has been gathering via ESMA and trade repositories (including DTCC, Unavista, CME) under the European Market Infrastructure Regulation (EMIR). It covers the details of every “new and outstanding over-the-counter (OTC) and exchange-traded derivatives transactions” made by all the counterparties resident in the EU (including with non-EU counterparties), with each transaction record possessing unique (coded) counterparty identifiers on it. This data has been very recently allowing researchers to draw a first complete picture of the EU derivatives market and to have positive impact on the macro-prudential policy measures influenced by the ESRB.