CDS Premium Research Articles

The determinants of Turkish CDS volatility: An ARDL approach covering COVID period

The accuracy of CDS premiums has been questioned in many former studies. However, we intend to show that the volatilities of these spreads rather than their basis point levels indicate and signal the status of sovereign risk and credit worthiness as they tend to reveal sudden deteriorations in key sovereign and global economic indicators. In that respect we aim to reveal the determinants of Turkish CDS spread volatility by using an ARDL Bounds Test framework. In line with our expectations exchange rate, stock market indice and oil price volatility have significant positive coefficients in the long run whereas US 10-year bond spreads have short run effects up to three lags. Also, our results show that COVID pandemic has remarkably increased Turkish CDS volatility. Moreover, the unorthodox monetary policies adopted after COVID has also raised CDS volatility with persistently high spread levels where a long-term memory effect was prevalent.

The Relationship Between Foreign Direct Investments and CDS Premiums in Türkiye: Time-Varying Causality Test (2011-2023)

Foreign direct investment (FDI) is used as an important policy tool in providing the funds needed by developing countries for development purposes. Countries with insufficient capital are in a race to attract foreign capital to their countries through various political, economic and legal regulations. This study econometrically investigates the relationship between FDI and CDS premiums in Türkiye and analyses whether there is a relationship between the monthly frequency data between 2011-2023. In order to determine the relationship between the variables, the stationarity of the variables should be determined first. "Lee and Strazicich (2003)" unit root tests, which take into account structural breaks, were applied to the data. The determination of whether there is causality between the variables, and if there is a causality relationship, the determination of the direction of the causality relationship is tested by mutual "Granger Causality" and “Time-Varying Causality” test methods. As a result of the study, no causality relationship was found from FDI to CDS premiums and from CDS premiums to FDI at 5% significance level.

Testing the relationship between investor risk appetite and country risk: The case of Turkey

Country risk is an important factor affecting the risk appetite of investors who want to create an optimal portfolio by minimizing their risks. Investor risk appetite can affect country risk as a factor contributing to the development of financial markets and the country's economy. The aim of this study is to determine the relationship between investor risk appetite and country risk. Hatemi-J cointegration and Hatemi-J asymmetric causality tests were used to determine the relationship between CDS premium, which is frequently preferred to represent country risk, and domestic and foreign investor risk appetite variables. As a result of the analysis, it has been determined that CDS premium and domestic and foreign investor risk appetite variables are cointegrated, a positive causality from increases in both local and foreign investor risk appetite to CDS premium and a negative or positive causality from decreases in CDS variables to both local and foreign investor risk appetite.

Which Index is More Affected by CDS Premium and VIX Index: BIST-30 or Participation-30?

Purpose: This study aims at determining the existence and, if any, the extent of comparative effects of the CDS premium and the VIX index on the BIST-30 and the Participation-30 indices before and during the pandemic. Methodology: The study explores the relationships of the CDS premium and VIX index to the BIST-30 index and the Participation-30 index for two time periods, as pre-pandemic and pandemic. The date range is set as 02.01.2018-10.03.2020 for the pre-pandemic period and as 11.03.2020-31.12.2021 for the pandemic period. Following the Johansen cointegration and ARDL tests employed to detect the long run relationships between the variables, FMOLS regression tests were used to determine the effect sizes. Results: As a result of the cointegration tests, long-term cointegration relationships of both the BIST-30 and the Participation-30 indices with the variables of the CDS premiums and the VIX index were determined before and during the pandemic period. FMOLS regression results posited that the VIX index had greater effect on the Participation 30 index in both periods. Originality and Practical Implications: The fact that the literature review does not reveal the existence of any study providing the comparative effects of the CDS premiums and the VIX index on both the BIST-30 and Participation-30 indices contributes to the originality of this paper.

Finansal Varlıklar Arasındaki Volatilite İlişkisi: TVP-VAR Modeli

In the post-pandemic period, intense fluctuations in interest rates, inflation, and prices were observed in many countries around the world. This study was conducted to analyze the dynamic interconnectedness between financial assets during this turbulent period. The study was conducted using TVP-VAR analysis on daily data of one-month deposit interest rate, BIST100 index return, two-year bond interest rate, USDTRY exchange rate, gold ounce price and CDS premiums between 2018 and 2023. The results of the study show that the interaction between variables reached a very high level especially in the post-pandemic period and then decreased over the years. On the other hand, the BIST100 index, gold and CDS premium are net shock emitters, while deposits, USDTRY and bonds are net shock receivers. It is aimed that the results obtained will enable investors to choose the right investment instrument in today's financial markets where prices, returns, and rates fluctuate, and on the other hand, it is aimed to benefit firms and policymakers in terms of macro problems in the current geography.

An Empirical Analysis of the Relationship Between Türkiye’s CDS Premium and Economic, Financial and Political Risk

This study investigates the causal relationship between Türkiye’s economic, financial, and political risk rates and CDS premiums. This assessment uses the Bootstrap TY and time-varying causality test to scrutinise the relationship between the risk rates and CDS premium between the periods 2000:10 and 2020:06. While the former analysis finds no causal relationship among the variables, the latter analysis deduces a significant causality. The Bootstrap TY asymmetric causality test findings discover causality arising from the negative shocks from political risk to CDS premium. The findings of the time-varying causality test identify periods in Türkiye in which a causal relationship is prevalent between economic, financial, and political risk with CDS premium.

Sovereign credit and geopolitical risks during and after the EMU crisis

AbstractThis paper focuses on the sovereign crisis of the Euro debt crisis era, and we address the existence of the relationship of CDS and bond markets sovereign credit risk pricing for selected core and periphery EMU countries, during and after the 2009 EMU crisis. We study this relationship in conjunction to geopolitical risk as a measure of macroeconomic uncertainty. We use daily observations for several bond maturities and CDS premium with reference to the core (France and Germany) versus periphery EMU countries (Portugal, Italy, Ireland Spain, and Greece) for the period 2009 to 2014. To measure global geopolitical risk, we employ the Caldara and Iacoviello (2022) global geopolitics index (GPR). Using alternative econometric approaches, we find adequate evidence of volatility spillovers between the geopolitical risk index and sovereign risk markets mainly during the crisis period (2009–2012) and weaker during the easing of the eurozone debt crisis period (2012–2014). Moreover, based on Granger causality the estimation of the short‐ term dynamics reveals a significant linkage during the post‐crisis period rather than during crisis. During the crisis period, we found significant dynamic responses between GPR and bond yields.

The Relationship Between Geopolitical Risk and Credit Default Swap Premium: Evidence from Turkey*

This study investigates the relationship between the geopolitical risk in Turkey arising out of the war and terror incidents happened in the region during the period 2003:01-2020:06 with the CDS premium. A two-step approach is undertaken for this assessment, in which an ARDL limit test and then a time-varying symmetric and asymmetric causality test are applied to study the possible causality vis-a-vis the subperiods. The ARDL limit test does not reject the hypothesis that there is a co-integrated relationship between CDS premium and geopolitical risk index. In addition, the time-varying symmetric and asymmetric test also identifies causality between CDS premium and geopolitical risk, and establishes periods where the latter influences the former variable both in a positive and negative way. In summary, both the ARDL limit test and the time-varying symmetric and asymmetric test deduce a causal relationship between the studied variables.

Revealing Volatility Spillover Effects Between CDS Premiums and Equity Markets in Developed and Developing Countries: VAR-BEKK-GARCH Model Approach

Revealing Volatility Spillover Effects Between CDS Premiums and Equity Markets in Developed and Developing Countries: VAR-BEKK-GARCH Model Approach

Gelişmiş ve Gelişmekte Olan Ülkeler İçin Bulaşma Kavramının İncelenmesi: 2008 Krizi Örneği

Çalışmada, 2008 Küresel Finansal Krizinin borsalara etkisi ampirik yöntemler ile araştırılmıştır. Kriz öncesi ve kriz sonrası dönemler için TÜFE, CDS primi ve 10 yıllık tahvil getirisine karşı borsa endekslerinin duyarlılıkları tahmin edilmiştir ve sonuçlar gelişmiş-gelişmekte olan ülkeler arasında karşılaştırılmıştır. Elde edilen bulgular, 2008 Küresel Finansal Krizinin tüm ülkeleri etkilediğini göstermektedir. Çalışmada gelişmekte olan ve bazı gelişmiş ülke (İtalya ve Japonya gibi) hisse senedi piyasalarının kriz sonrasında genel olarak S&P500 endeksine ve CDS primine karşı duyarlılığının artığı tespit edilmiştir. Ayrıca bu ülkelerin ABD piyasalarına karşı kırılgan oldukları, kendilerini ABD’den kaynaklanan krizin olumsuz koşullarından izole edemedikleri görülmektedir.

Time-varying dynamic analysis of factors affecting the levels of underpricing, average pricing, and overpricing of the US dollar in global derivatives markets

Purpose- The aim of this study is to calculate the coefficient parameters of the factors affecting the pricing in the low, average, and overpricing intervals and points of the US Global dollar index and then to investigate the dynamic historical effects of these parameters. Methodology in the study, "Quantile Regression" to calculate parameter differences in pricing intervals and "Kalman Filtering" methods to calculate their historical dynamic effects. Findings- In the design of the study, The intervals are 0.5-0.95 incremental overpricing, 0.5 (Median) average, and 0.05-0.5 (Median) underpricing (low-pricing). The study's results show that model 0.4. quantile has respectively the highest value R2 and adjusted R2 values, approximately 53.2 percent and 49.1 percent. Additionally, the probability value of all 19 estimated models is statistically significant at the 0.05 level. While the coefficients of the Baltic Dry Index (at 5%), the Global gold prices (at 5%), and the US 10-year bond yields (10%) are negative, the coefficients of the Nasdaq (10%) and Vix (5% and 10%) have positive signs. These variables are significant in the underpricing quantiles that conducted interval of the US Dollar index (0.05-0.5) in the research design. The price point that represents the median value yields the same results. From that point of view, only the Vix index is significant and only at a 10% level. The Baltic Dry Index (5%), Bitcoin and Gold prices (5% and 10%), US 10-year interest rates-yields (5%), and CDS premium are among the factors that are relevant in the high-quantile overpricing range of the US Dollar index (0.05-0.5). (5 percent and 10 percent ), Although the variables' coefficients are negative, the coefficients for inflation (at 5% and 10%), Nasdaq (at 5%), and the VIX index (10%) are positive. The dynamic coefficients determined historically and dynamically using the Kalman filtering technique in all quantiles have had the same values. Conclusion- Since Kalman analysis and quantile regression analysis have different theoretical background, parameter differences in underpricing and overpricing periods may be eliminated when historical dynamics are examined. As a result, even though the findings of quantile regression and the results of Kalman analysis were roughly parallel, the predicted parameters for some variables did not closely match the effects of either technique. The literature has noted that research utilizing both methodologies might run into such statements that can be encountered in the study’s findings under comparable circumstances (Bernardi v., 2016: 34). Additionally, as the geopolitical risk index conveys countercyclical hazards, the rising geopolitical risks in the historical coefficients raised the US dollar index, according to Kalman's study. Keywords: Global US dollar ındex, derivatives markets, exchange rate shocks JEL Codes: F30, F31, G13

Empirical Analysis of the Relationship of Stock Market, Exchange Rate, CDS Spreads and VIX Index in Turkey

Küresel entegrasyon süreçlerinin hız kazanmasıyla yaşanan krizlerin yapısındaki ortak noktanın genel olarak ülke risk primindeki artışlar veya büyük açık ekonomilerde ortaya çıkan oynaklıkların olduğu görülmektedir. Bu çalışmanın amacı Türkiye’de borsa endeksi, döviz kuru, risk primi (CDS) ve korku endeksi (VIX) arasındaki ilişkileri incelemektir. Bunun için ARDL sınır testinden yararlanılmıştır. Analiz dönemi olarak hem veri bulunabilirliği açısından hem de Türkiye ekonomisi için yapısal bir dönüm noktası olan Şubat 2001 sonrası dönem kullanılmıştır. Literatürden farklı olarak hem ülke risk primini temsil eden CDS primi, hem de yurtdışı risk alma iştahını ve dolayısıyla yurtdışı konjonktürü yansıtan VIX endeksi aynı modelde kullanılmıştır. Bu şekilde CDS ve VIX göstergelerinin aynı modelde kullanılması sonucunda borsa endeksi üzerindeki etkilerinin aynı düzeyde olup olmadığı sorusuna ışık tutulmaya çalışılmıştır. Elde edilen ampirik bulgulara göre Türkiye’de borsa endeksini döviz kuru, CDS primi ve VIX endeksi etkilemektedir. Küresel piyasalara entegre bir ülke olan Türkiye’de bu sonucun beklentiler dahilinde düşünülmektedir. Yani döviz kuru, ülke risk primi ve yurtdışı risk alma iştahında meydana gelen değişimlerin borsa hareketleri üzerinde etkisi bulunmaktadır. Sonuçlarımız, küresel risk alma iştahını temsilen VIX endeksine kıyasla ülke riskini temsil eden CDS priminin BİST 100 için önemli bir gösterge olduğunu göstermektedir. Bu durumda hisse senedi piyasalarında incelenen değişkenlerin önemini öne çıkarmaktadır.

Carbon emission and credit default swaps

We examine the effect of carbon emission and the CDS market reactions. The carbon credit risk affects the credit risk of the underlying firm through the policy uncertainty. We document a statistically and economically significant positive relation between scope 1 carbon emission and the single-name CDS premium. The CDS term structure rises with the increase of carbon emission, reflecting a relatively long-term concern on environmental policy implications on the firm’s downside risk. The proposed effect is more pronounced for firms with high financial constraints. The paper contributes to the ongoing asset pricing implications of implementing stricter ESG policies.

Determinants of Stock Market Indices: An Analysis of Emerging Markets of Brazil, Mexico, Russia, and Turkey

This paper investigates the dynamic relationship between the stock market index and a set of macroeconomic variables in four emerging countries. The dependent variable measures monthly stock exchange points of respective markets from January 2010 to March 2021. Independent variables consist of the 5-Year bond yields, CDS Premiums, VIX Futures, gold price, MSCI Emerging Market Index, and Oil Prices. Since the dependent and independent variables have a cointegrating relationship, we conducted our analyses in both the short and long term. Findings indicated that CDS premiums, oil and gold prices have a negative, while VIX and MSCI have a positive effect on the stock index in the long term. On the other hand, bond yields and the COVID-19 have a negative while MSCI has a positive effect in the short term. In addition, the long-term effects are much evident in Brazil and Russia. The speed of adjustment to the long-term equilibrium in the stock market index is much higher in Turkey and Mexico.

Neural network foreign exchange trading system using CCS-IRS basis: Empirical evidence from Korea

This study aims to develop a foreign exchange trading model with a new leading indicator based on cross-currency swap (CCS) and interest rate swap (IRS) rates. We derive the correlation dimension from the chaos analysis, use Neural Networks (NNs) to optimize foreign exchange trading, and then compare the performance of the NNs model with XGBoost and Logistic Regression model (LR). The CCS-IRS basis is the spread between the cross-currency swap (CCS) rate and interest rate swap (IRS) rate and is often used as an indicator for foreign exchange soundness along with the CDS premium in Korea. Based on the phenomenon in which the USDKRW exchange rate rises (falls) when the CCS-IRS basis widens (tightens), this study proposes to use the CCS-IRS basis to build a foreign exchange trading model of the USDKRW exchange rate. The experimental results show that our NNs trading model of the USDKRW exchange rate outperforms XGBoost and LR model, generating an annual return of 4.888%∼8.464%, whereas the buy-and-hold and sell-and-hold strategies in the USDKRW exchange rate market produces an annual return of 2.2% and −1.15%, respectively. The foreign exchange trading model established in this paper not only enables foreign exchange traders to obtain sustainable economic profits, but also contributes to the efficiency of the financial market, thereby contributing to sustainable economic growth.

REGIONAL DOLLARIZATION DIFFERENCES AND DETERMINANTS: THE CASE OF TURKEY

This study investigates the determinants of deposit dollarization within 81 cities of Turkey for the period of 2007:Q4 – 2019:Q1. Within this scope, exchange rate, CDS premiums, city inflation, city export and import are used to model deposit dollarization. As an econometric approach both fixed and random effect panel data methods are implemented using relevant libraries in Python programming language to measure the impact of independent variables. As a result, all independent variables have statistically significant and positive effect on deposit dollarization within cities. When evaluated according to the effect sizes, inflation, import, export, exchange rate and CDS premiums are considered to be determinant, respectively, on deposit dollarization in Turkish cities. On the other hand, when the two models are tested with the Hausman test, which has a null hypothesis “random effect estimator is true”, it is concluded that the random effect model is more suitable for our model. In addition, to see if citizens living abroad that have registered in the cities have an impact on the dollarization, Pearson correlation is conducted and it is found that there is relatively strong correlation between the number of expatriate citizens and deposit dollarization in the city.

How Do Voluntary Disclosures on Climate Risk and Their Tone Affect CDS Premiums?

How Do Voluntary Disclosures on Climate Risk and Their Tone Affect CDS Premiums?

Pay Senedi Fiyat Yönünün Makine Öğrenmesi Yöntemleri ile Tahmini: Borsa İstanbul Örneği

In this study, stock price with the calculated next three-month average of five manufacturing industry companies in the Borsa Istanbul 30 Index and the Corporate Governance Index was predicted with the data of the 2010/3 and 2020/3 periods. The dataset consisted of quarterly nine financial statements and five macroeconomic variables with a three-month average of the sample companies. Artificial Neural Networks, Classification and Regression Tree, and K- Nearest Neighbor Algorithm were used as prediction methods. A 10-fold cross-validation method was used in all methods in the study. In Artificial Neural Networks, Classification and Regression Tree analysis, the models that gave the best results in line with the given parameter ranges were obtained by using the determining the best parameters and performance criteria function. According to the results of the analysis, general classification accuracy was achieved 98.05% for Artificial Neural Networks, 96.10% for Classification and Regression Tree, and 92.20% K-Nearest Neighbor Algorithm. “Net Profit Margin”, “Price/Earning”, “Profit Per Share”, “CDS Premium (3-month average)”, “Consumer Confidence Index” were found as important variables that divided the data into two in the creation of the Classification and Regression Tree (CART) analysis. This result shows that the models used in this study can be incorporated into the models used by investors.

İktisadi, Finansal ve Politik Risklerin Türkiye CDS Primine Etkileri

The purpose of this study is to analyze the effects of economic, financial and political risks on CDS premium of Turkey. For this purpose, we examine asymmetric effects of economic, financial and political risk variables on Turkey’s CDS by employing nonlinear autoregressive distributed lag model for the period 2000:10-2020:06. Our findings are two-fold. First, we find that both economic and financial risks have asymmetric effects on CDS premium, while political risks have symmetric effect on CDS. Second, we find that increases in financial risks raise CDS premium more than that of economic risks, while decreases in economic risks reduce CDS premium more than that of financial risks. The empirical results imply that economic reforms appear to be more efficient than the financial recovery measures in reducing CDS premium of Turkey.

COVID-19 Döneminde Makroekonomik Değişkenlerin Borsa Üzerindeki Etkisi: Türkiye Örneği

Along with the ongoing efforts to understand the effects of the COVID-19 pandemic on economies through various simulations and forecasts, the severe trauma experienced in financial markets has already manifested itself in market data. Besides the uncertainty created by the pandemic, fluctuations in macroeconomic variables have increased volatility in the developed and emerging stock markets. In this context, this study aims to examine the effect of macroeconomic variables on the BIST 100 index before and during the COVID-19 pandemic. Hence, the effects of interest rate, exchange rate, CDS premium, VIX, and oil prices on BIST 100 are estimated using the Flexible Least Squares method, which allows for the time-varying coefficient estimation, for the period of 13 September 2019 to 11 September 2020. Empirical findings indicate that interest rate, VIX, and oil prices had significant effects on BIST 100 for certain periods. On the other hand, the exchange rate and CDS premium significantly and negatively affect BIST 100 in the whole sample. Moreover, it is determined that the exchange rate is the macroeconomic variable with the highest impact on BIST 100 based on the quantitative magnitude of the coefficients.