VOLATILITY TRANSMISSION OF CREDIT DEFAULT SWAP (CDS) RISK PREMIUMS

Year 2015, Issue: 45, 24 - 33, 04.08.2015

Mert Ural , Erhan Demireli

Abstract

The importance of the volatility transmission across the international financial markets has become a current issue
by the effects of global crisis in 2008. The purpose of this study is to assign the effect of the global crisis among the Credit
Default Swap (CDS) risk premium volatilities in Brazil, Russia, China, South Africa and Turkey, and which country is more
effective than the others in the volatility transmission. We analyze these countries’ daily CDS returns for the period January 27th
,
2003 – November 4th
, 2014 by using a MGARCH model. The empirical results show that the CDS returns’ volatility has
increased during the global crisis period, the source of degree of innovation is China CDS risk premium and the source of
volatility transmission is Brazil and Turkey CDS risk premiums.

Keywords

Credit Default Swap (CDS), Volatility Transmission, MGARCH

KREDİ TEMERRÜT TAKASI (CDS) RİSK PRİMLERİNDE OYNAKLIK GEÇİŞİ

Abstract

 Küresel krizin ardından uluslararası finansal piyasalar arasında oynaklık geçişi giderek önem kazanmıştır. Bu çalışmanın
amacı, küresel krizin Brezilya, Rusya, Çin, Güney Afrika ve Türkiye’de Kredi Temerrüt Takası (CDS) risk primi oynaklık düzeyi
üzerine etkisini ve ülkeler arası oynaklık geçişlerini belirlemektir. Söz konusu ülkelere ait 27 Ocak 2003 – 4 Kasım 2014 dönemi
günlük CDS getirilerinin MGARCH yöntemiyle analiz edilmiştir. Elde edilen ampirik sonuçlara göre; küresel kriz döneminde
oynaklıkların arttığı ve haber etkisinin kaynağı Çin iken oynaklık geçişinin kaynağı Brezilya ve Türkiye olarak saptanmıştır.

Keywords

Kredi Temerrüt Takası (CDS), Oynaklık Geçişi, MGARCH

References

• Bauwens, L., S. Laurent and J.V.K. Rombouts (2006). Multivariate GARCH Models: A Survey. Journal of Applied Econometrics, 21(1), 79-109.
• Bollerslev, T. (1990). Modeling the Coherence in Short Run Nominal Exchange Rates: A Multivariate Generalized ARCH Approach. Review of Economics and Statistics, 72, 498-505.
• Bollerslev, T., R.F. Engle and J.M. Wooldridge (1988). A Capital Asset Pricing Model with Time-Varying Covariances. The Journal of Political Economy, 96, 116-131.
• Bozkurt, H. (2009). M-GARCH Modellerinin Karşılaştırmalı Analizi. Kocaeli Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 18(2), 126-145.
• Brooks, C. (2008). Introductory Econometrics for Finance, Cambridge University Press, Second Edition.
• Brooks, C., S. Burke and G. Persand (2003). Multivariate GARCH Models: Software Choice and Estimation Issues. ISMA Centre Discussion Papers in Finance, 2003-07.
• Caporale, G.M., N. Pittis and N. Spagnolo (2006). Volatility Transmission and Financial Crises. Journal of Economics and Finance, 30(3), 376-390.
• Çiçek, M. and F. Öztürk (2007). Yabancı Hisse Senedi Yatırımcıları Türkiye’de Döviz Kuru Volatilitesini Şiddetlendiriyor mu?. Ankara Üniversitesi Siyasal Bilgiler Fakültesi Dergisi, 62(4), 83-106.
• Engle, R.F. and K. Sheppard (2001). Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH. NBER Working Paper Series, No: 8554.
• Engle, R.F, K.F. Kroner, Y. Baba and D.F. Kraft (1993). Multivariate Simultaneous Generalized ARCH. University of California, Economics Working Paper Series, 89-57.
• Engle, R.F. and K.F. Kroner (1995). Multivariate Simultaneous Generalized ARCH. Econometric Theory, 11(01), 122-150.
• Goldman Sachs (2001). Building Better Global Economics BRICs. Global Economics Paper, 66.
• Goldman Sachs (2007). BRICs and Beyond. Goldman Sachs Global Economics Group.
• Hamilton, J.D. (1994). Time Series Analysis. Princeton University Press, USA.
• Hull, J.C. (2008), Options, Futures and Other Derivatives, 6th edition, Prentice Hall.
• Karolyi, G.A. (1995). A Multivariate GARCH Model of International Transmissions of Stock Returns and Volatility: The Case of the United States and Canada. Journal of Business & Economic Statistics, 13(1), 11-25.
• Kearney, C. and A.J. Patton (2000). Multivariate GARCH Modeling of Exchange Rate Volatility Transmission in the European Monetary System. The Financial Review, Eastern Finance Association, 35(1), 29-48.
• Köseoğlu, S.D. (2013). The Transmission of Volatility between the CDS Spreads and Equity Returns Before, During and After the Global Financial Crisis: Evidence from Turkey. Proceedings of 8th Asian Business Research Conference 1 - 2 April 2013, Bangkok, Thailand.
• Laurent, S., J.V.K. Rombouts, A. Silvennoinen and F. Violante (2006). Comparing and Ranking Covariance Structures of M- GARCH Volatility Models. www.cide.info/conf/papers/L2.pdf, (12.04.2010).
• Meng, L., Gwilym, O. and Varas, J. (2009). Volatility transmission among the CDS, equity, and bond markets. The Journal of Fixed Income. 18(3), 33-46.
• Minović, J.Z. (2009). Modeling Multivariate Volatility Processes: Theory and Evidence. Theoretical and Applied Economics, 05(05), 21-44.
• Mun, K.C. (2007). Volatility and Correlation in International Stock Markets and the Role of Exchange Rate Fluctuations. Journal of International Financial Markets, Institutions & Money, 17, 25-41.
• Polasek, W. and L. Ren (2000). A Multivariate GARCH-M Model for Exchange Rates in the US, Germany and Japan. Computing in Economics and Finance 2000, Society for Computational Economics, 223, http://fmwww.bc.edu/cef00/papers/paper223.pdf, (08.05.2010).
• Silvennoinen, A. and T. Terasvirta (2008). Multivariate GARCH Models. SSE/EFI Working Paper Series in Economics and Finance, No: 669.
• Tokat, H.A. (2013). Understanding volatility transmission mechanism among the CDS markets: Europe & North America versus Brazil & Turkey. Economia Aplicada. 17(1). Tse, Y.K. and A.K.C. Tsui (2000). A Multivariate GARCH Model with Time-Varying Correlations. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=250228, (12.05.2010).
• Wei, C.C. (2008). Multivariate GARCH Modeling Analysis of Unexpected USD, Yen and Euro-Dollar to Reminibi Volatility Spillover to Stock Markets. Economics Bulletin, 3(64), 1-15.
• Worthington, A.C. and H. Higgs (2004). Transmission of Equity Returns and Volatility in Asian Developed and Emerging Markets: A Multivariate GARCH Analysis. International Journal of Finance and Economics, 9(1), 71-80.
• Worthington, A.C. and H. Higgs (2003). A Multivariate GARCH Analysis of the Domestic Transmission of Energy Commodity Prices and Volatility: A Comparison of the Peak and Off-Peak Periods in the Australian Electricity Spot Market. Queensland University of Technology, School of Economics and Finance, Discussion Paper No: 140.
• Worthington, A.C., A. Kay-Spratley and H. Higgs (2005). Transmission of Prices and Price Volatility in Australian Electricity Spot Markets: A Multivariate GARCH Analysis. Faculty of Commerce Papers, University of Wollongong.