Analysis of Relations between CDS, Stock Market, and Exchange Rate: Evidence from Covid-19

Abstract

The aim of the study is to investigate the relationships between CDS, the BIST100 index, and the US Dollar/Turkish Lira (USD/TRY) exchange rate during the Covid-19 period. For this purpose, the study used the frequency domain causality test developed by Breitung and Candelon (2006). According to the results of the study, a bidirectional causal relationship was found between CDS and the BIST100 index. While this relationship took place in the short and medium term from CDS to BIST100 index, it was detected in the entire frequency range (in all periods) from BIST100 index to CDS. In other words, it can be stated that while the causality from CDS to BIST100 index is not permanent, causality from BIST100 index to CDS is permanent. Similarly, a bidirectional causality relationship was found between CDS and the USD/TRY exchange rate. While this relationship occurred in the short and medium term from CDS to USD/TRY exchange rate, it was detected in the entire frequency range (in all periods) from USD/TRY exchange rate to CDS. In other words, it can be stated that while the causality from CDS to USD/TRY exchange rate is not permanent, the causality from USD/TRY exchange rate to CDS is permanent.