Abstract:

Global markets significantly influence investment decisions of investors. Investors prioritize being knowledgeable about the risks they undertake to understand and manage financial risks. One of the most critical risk indicators that investors can encounter is the CDS premium, which reflects the risk situation of the country they are considering for investment. This study aims to understand the relationship between the BIST 100 index, CDS premium, and exchange rate variables by examining the causality relationship among these critical variables in financial markets. The causal interrelationships of the variables were examined using monthly data between January 1, 2009, and March 1, 2023. For the variables identified as stationary at their first differences, an appropriate lag length was determined to establish a reliable VAR model, and tests were conducted to check for autocorrelation, changing variance, and endogeneity issues. Causality relationships in the VAR model with no issues were analyzed using the Toda-Yamamoto causality test. According to the conducted analyses, it was concluded that there is a two-way causality relationship among all variables. Thus, it was determined that the change in one of the BIST 100 Index, exchange rate and CDS Premium variables was the cause of the change in the second variable.

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