Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro


KAR M. , BAYAT T., Kayhan S.

INTERNATIONAL JOURNAL OF FINANCIAL STUDIES, vol.4, no.3, 2016 (Journal Indexed in ESCI) identifier

  • Publication Type: Article / Article
  • Volume: 4 Issue: 3
  • Publication Date: 2016
  • Doi Number: 10.3390/ijfs4030014
  • Title of Journal : INTERNATIONAL JOURNAL OF FINANCIAL STUDIES

Abstract

In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015.