Abstract:

Credit default swaps (CDS) are an important indicator of country risks. The study was carried out with daily data for 12.04.2013-03.12.2020. The aim of the study is to test the interaction between the changes in Turkey's CDS premiums and the BIST 100 index, exchange rates, and bond rates. The findings obtained aim to make recommendations to policymakers and investors in terms of risk monitoring, risk management, and investment portfolio. The interaction between CDS and BIST 100 index, exchange rates, and bond interest rates was analyzed via cDCC-EGARCH and causality in variance. As a result of the analysis, it has been seen that the effect of shocks created by increases for CDS, USD/TL, EU/TL, and bond interest series is more and more significant than shocks created by decreases. According to the results of causality analysis in variance, a unidirectional causality relationship was found from exchange rates and interest rates to CDS premiums. A causality relationship was determined from CDS premiums to the BIST 100 index. It is possible to predict the volatility in CDS premiums from the first lag by monitoring exchange rates and bond yields volatility. The results show that if the stability in the exchange rate level in Turkey is ensured, the CDS premiums can be kept in the appropriate range, and the borrowing costs can be reduced.

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