Does it take two to tango: Interaction between Credit Default Swaps and National Stock Indices
Journal Title: Journal of Economics and Financial Analysis - Year 2018, Vol 2, Issue 1
Abstract
This paper investigates both short and long-run interaction between BIST-100 index and CDS prices over January 2008 to May 2015 using ARDL technique. The paper documents several findings. First, ARDL analysis shows that 1 TL increase in CDS shrinks BIST-100 index by 22.5 TL in short-run and 85.5 TL in long-run. Second, 1000 TL increase in BIST index price causes 25 TL and 44 TL reducation in Turkey's CDS prices in short- and long-run respectively. Third, a percentage increase in interest rate shrinks BIST index by 359 TL and a percentage increase in inflation rate scales CDS prices up to 13.34 TL both in long-run. In case of short-run, these impacts are limited with 231 TL and 5.73 TL respectively. Fourth, a kurush increase in TL/USD exchange rate leads 24.5 TL (short-run) and 78 TL (long-run) reductions in BIST, while it augments CDS prices by 2.5 TL (short-run) and 3 TL (long-run) respectively. Fifth, each negative political events decreases BIST by 237 TL in short-run and 538 TL in long-run, while it increases CDS prices by 33 TL in short-run and 89 TL in long-run. These findings imply the highly dollar indebted capital structure of Turkish firms, and overly sensitivity of financial markets to the uncertainties in political sphere. Finally, the paper provides evidence for that BIST and CDS with control variables drift too far apart, and converge to a long-run equilibrium at a moderate monthly speed.
Authors and Affiliations
Yhlas Sovbetov, Hami Saka
Keywords
Related Articles
- EP ID EP254400
- DOI -
- Views 154
- Downloads 0
Measuring Predictability of Oil and Gas Stock Returns and Performance of Moving Average Trading Rules
The paper re-examines whether investors can predict oil and gas stock prices for abnormal returns using autocorrelation-based trading and filter rules and moving average strategies. In this paper, short and long lengths...
Interaction of Economic Freedom and Foreign Direct Investment Globally: Special Cases from Neglected Regions
This paper studies the macroeconomic impact of economic freedom on foreign direct investments inflows in both global and regional panel analyses involving 156 countries through the period of 1995-2016. Unlike to prior li...
Inequality and Sovereign Default under Democracy
Do differences in the inequality of income affect the likelihood that democratic governments decide not to honor their foreign debt contracts? I argue that sovereign default involves an intertemporal tradeoff between an...
Interest Rate Swaptions: A Review and Derivation of Swaption Pricing Formulae
In this paper we outline the European interest rate swaption pricing formula from first principles using the Martingale Representation Theorem and the annuity measure. This leads to an expression that allows us to apply...
Nonparametric NAR-ARCH Modelling of Stock Prices by the Kernel Methodology
This paper analyses cyclical behaviour of Orange stock price listed in French stock exchange over 01/03/2000 to 02/02/2017 by testing the nonlinearities through a class of conditional heteroscedastic nonparametric models...