Research Article
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Year 2023, , 513 - 531, 26.06.2023
https://doi.org/10.26650/ISTJECON2022-1223833

Abstract

References

  • Altınok, H., & Akça, A. (2021). BRICS+ T ülkelerinde sanayi üretim endeksi ve kredi temerrüt takası arasındaki ilişki: Konya bootstrap nedensellik yaklaşımı. Maliye Dergisi, (180), 252-269. google scholar
  • Ang, A., & Timmermann, A. (2011). Regime changes and financial markets. Netspar Discussion Paper. DP 06/2011-068, 1-32. google scholar
  • Anton, S. G., & Afloarei Nucu, A. E. (2020). Sovereign credit default swap and stock markets in Central and Eastern European countries: Are feedback effects at work?. Entropy, 22(3), 338. Doi: https://doi.org/10.3390/e22030338 google scholar
  • Asandului, M., Lupu, D., Mursa, G., & Musetescu, R. (2015). Dynamic relations between CDS and stock markets in Eastern European countries. Economic Computation and Economic Cybernetics Studies and Research, Issue 4/2015. google scholar
  • Augustin, P., Subrahmanyam, M. G., Tang, D. Y., & Wang, S. Q. (2016). Credit default swaps. Annual Review of Financial Economics, 8, 175-196. google scholar
  • Ballester, L., Escriva, A. M., & Gonzalez-Urteaga, A. (2021). The Nexus between sovereign CDS and stock market volatility: new evidence. Mathematics, 9(11), 1201. Doi: https://doi.org/10.3390/math9111201 google scholar
  • Bauwens, L., Preminger, A., & Rombouts, J. V. (2010). Theory and inference for a Markov switching GARCH model. The Econometrics Journal, 13(2), 218-244. Doi: https://doi. org/10.1111/j.1368-423X.2009.00307.x google scholar
  • Bildirici, M., & Ersin, Ö. (2014). Modeling Markov switching ARMA-GARCH neural networks models and an application to forecasting stock returns. The Scientific World Journal, 2014. Doi: https:// doi.org/10.1155/2014/497941 google scholar
  • Bildirici, M., Sonüstün, B., & Gökmenoğlu, S. M. (2019, November). CDS-Stock market chaotic relationship-Turkish stock market case. In AIP Conference Proceedings (Vol. 2178, No. 1, p. 030068). Doi: https://doi.org/10.1063/1.5135466 google scholar
  • Bolaman Avcı, Ö. (2020). Interaction between CDS premiums and stock markets: Case of Turkey. Ömer Halisdemir Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 13(1), 1-8. Doi: https://doi. org/10.25287/ohuiibf.526638 google scholar
  • Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307-327. Doi: https://doi.org/10.1016/0304-4076(86)90063-1 google scholar
  • Celik, S., & Koc, Y. D. (2016). Relationship between sovereign credit default swap and stock markets: the case of Turkey. The Macrotheme Review, 5(4), 36-40. google scholar
  • Central Bank of the Republic of Turkey, the Electronic Data Delivery System, (Date accessed: 12/20/2022). google scholar
  • Ceylan, F., Tuzun, O., & Ekinci, R. (2018). The effect of credit default swaps (CDS) on BIST100 in Turkey: MS-VAR approach. Ecoforum journal, 7(1). google scholar
  • Chau, F., Han, C., & Shi, S. (2018). Dynamics and determinants of credit risk discovery: Evidence from CDS and stock markets. International Review of Financial Analysis, 55, 156-169. Doi: https:// doi.org/10.1016/j.irfa.2017.11.004 google scholar
  • Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 1057-1072. Doi: https://doi. org/10.2307/1912517 google scholar
  • Dieobold, F. X. (1986). Modeling the persistence of conditional variances: A comment. Econometric Reviews, 5(1), 51-56. Doi: https://doi.org/10.1080/07474938608800096 google scholar
  • Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 987-1007. Doi: https://doi.org/10.2307/1912773 google scholar
  • Esen, S., Zeren, F., & Şimdi, H. (2015). CDS and stock market: panel evidence under cross-section dependency. South-Eastern Europe Journal of Economics, 13(1). google scholar
  • Fei, F., Fuertes, A. M., & Kalotychou, E. (2017). Dependence in credit default swap and equity markets: Dynamic copula with Markov-switching. International Journal of Forecasting, 33(3), 662678. Doi: https://doi.org/10.1016/j.ijforecast.2017.01.006 google scholar
  • Forte, S., & Pena, J. I. (2009). Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS. Journal of Banking & Finance, 33(11), 2013-2025. Doi: https://doi. org/10.1016/j.jbankfin.2009.04.015 google scholar
  • Hamilton, J. D. (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica: Journal of the Econometric Society, 357-384. Doi: https://doi. org/10.2307/1912559 google scholar
  • Hammoudeh, S., & Sari, R. (2011). Financial CDS, stock market and interest rates: Which drives which?. The North American Journal of Economics and Finance, 22(3), 257-276. Doi: https://doi. org/10.1016/j.najef.2011.04.001 google scholar
  • Inclan, C., & Tiao, G. C. (1994). Use of cumulative sums of squares for retrospective detection of changes of variance. Journal of the American Statistical Association, 89(427), 913-923. Doi: https://doi.org/10.1080/01621459.1994.10476824 google scholar
  • Kandemir, T., Vurur, N. S., & Gökgöz, H. Türkiye’nin CDS primleri ile Bist100, döviz kurları ve tahvil faizleri arasındaki etkileşimin cDCC-EGARCH ve varyansta nedensellik analizleriyle incelemesi. Karamanoğlu Mehmetbey Üniversitesi Sosyal Ve Ekonomik Araştırmalar Dergisi, 24(42), 510-526. google scholar
  • Lamoureux, C. G., & Lastrapes, W. D. (1990). Persistence in variance, structural change, and the GARCH model. Journal of Business & Economic Statistics, 8(2), 225-234. google scholar
  • Longstaff, F. A., Mithal, S., & Neis, E. (2005). Corporate yield spreads: default risk or liquidity? New evidence from the credit default swap market. The Journal of Finance, 60(5), 221-353. google scholar
  • Mateev, M. (2019). Volatility relation between credit default swap and stock market: new empirical tests. Journal of Economics and Finance, 43(4), 681-712. Doi: https://doi.org/10.1007/s12197-018-9467-5 google scholar
  • Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of finance, 29(2), 449-470. Doi: https://doi.org/10.2307/2978814 google scholar
  • Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American economic review, 48(3), 261-297. google scholar
  • Ozsoy, T. (2022). Turkish Stock Market’s 80% rally fuels world’s top gains in 2022, Bloomberg, https://www.bloomberg.com/news/articles/2022-11-22/inflation-hit-turks-lift-stocks-to-world-s-top-2022-performer?leadSource=uverify%20wall, (Date accessed: 12/22/2022). google scholar
  • Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346. Doi: https://doi.org/10.1093/biomet/75.2.335 google scholar
  • Sanso, A., Carrion, J. L., & Arago, V. (2004). Testing for changes in the unconditional variance of financial time series. Revista de Economfa Financiera, 2004, 4, p. 32-52. google scholar
  • Saritaş, H., Kiliç, E., & Nazlioğlu, E. H. (2021). CDS primleri ve derecelendirme (raiting) notları ile BIST 100 endeksi arasındaki ilişkinin incelenmesi: Türkiye örneği. Maliye ve Finans Yazıları, (116), 73-92. Doi: https://doi.org/10.33203/mfy.854876 google scholar
  • Schwert, G. W. (1989). Why does stock market volatility change over time?. The Journal of Finance, 44(5), 1115-1153. Doi: https://doi.org/10.1111/j.1540-6261.1989.tb02647.x google scholar
  • Sovbetov, Y., & Saka, H. (2018). Does it take two to tango: Interaction between credit default swaps and national stock indices. Journal of Economics and Financial Analysis, 2(1), 129-149. google scholar
  • Sun, X., Wang, J., Yao, Y., Li, J., & Li, J. (2020). Spillovers among sovereign CDS, stock and commodity markets: A correlation network perspective. International Review of Financial Analysis, 68, 101271. Doi: https://doi.org/10.1016/j.irfa.2018.10.008 google scholar
  • Topaloğlu, E. E., & Ege, İ. (2020). Kredi temerrüt swapları (CDS) ile Borsa İstanbul 100 endeksi arasındaki ilişki: kısa ve uzun dönemli zaman serisi analizleri. İşletme Araştırmaları Dergisi, 12(2), 1373-1393. Doi: https://doi.org/10.20491/isarder.2020.918 google scholar
  • Ustaoğlu, E. (2022). Analysis of Relations between CDS, Stock Market, and Exchange Rate: Evidence from Covid-19. Ekonomi Politika ve Finans Araştırmaları Dergisi, 7(2), 301-315. Doi: https://doi. org/10.30784/epfad.1085420 google scholar
  • Wee, D. C., Chen, F., & Dunsmuir, W. T. (2020). Likelihood inference for Markov switching GARCH (1,1) models using sequential Monte Carlo. Econometrics and Statistics. Doi: https://doi. org/10.1016/j.ecosta.2020.03.004 google scholar
  • www.investing.com, (Date accessed: 12/20/2022). google scholar

How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model

Year 2023, , 513 - 531, 26.06.2023
https://doi.org/10.26650/ISTJECON2022-1223833

Abstract

This study aims to investigate the effect of the credit default swap (CDS) on the Turkish stock market. More specifically, it analyses whether the relationship between CDS and the Turkish stock market has changed during the period of unprecedented stock returns in 2022. The Markov Switching GARCH method is preferred because of its many advantages in the analysis of the return series of the variables. Two different models are estimated for the full sample weekly period of 2010:01-10/2022:12-11 and the subsample weekly period of 2010:01-10/2021:12-05. The subsample period is more optimal than the full sample period. Nevertheless, the findings of both sample periods are included to make a comparison. The effect of CDS on the Turkish stock market is greater in the high-volatility regime than in the lowvolatility regime. CDS has a negative impact on the Turkish stock market in both low and high volatility periods. The most striking finding is that CDS affects the Turkish stock market approximately twice as much in the subsample period as in the full sample period in both regimes. Policymakers should follow risk-oriented policies instead of policies against the wind against the risk of a possible boom in financial markets.

References

  • Altınok, H., & Akça, A. (2021). BRICS+ T ülkelerinde sanayi üretim endeksi ve kredi temerrüt takası arasındaki ilişki: Konya bootstrap nedensellik yaklaşımı. Maliye Dergisi, (180), 252-269. google scholar
  • Ang, A., & Timmermann, A. (2011). Regime changes and financial markets. Netspar Discussion Paper. DP 06/2011-068, 1-32. google scholar
  • Anton, S. G., & Afloarei Nucu, A. E. (2020). Sovereign credit default swap and stock markets in Central and Eastern European countries: Are feedback effects at work?. Entropy, 22(3), 338. Doi: https://doi.org/10.3390/e22030338 google scholar
  • Asandului, M., Lupu, D., Mursa, G., & Musetescu, R. (2015). Dynamic relations between CDS and stock markets in Eastern European countries. Economic Computation and Economic Cybernetics Studies and Research, Issue 4/2015. google scholar
  • Augustin, P., Subrahmanyam, M. G., Tang, D. Y., & Wang, S. Q. (2016). Credit default swaps. Annual Review of Financial Economics, 8, 175-196. google scholar
  • Ballester, L., Escriva, A. M., & Gonzalez-Urteaga, A. (2021). The Nexus between sovereign CDS and stock market volatility: new evidence. Mathematics, 9(11), 1201. Doi: https://doi.org/10.3390/math9111201 google scholar
  • Bauwens, L., Preminger, A., & Rombouts, J. V. (2010). Theory and inference for a Markov switching GARCH model. The Econometrics Journal, 13(2), 218-244. Doi: https://doi. org/10.1111/j.1368-423X.2009.00307.x google scholar
  • Bildirici, M., & Ersin, Ö. (2014). Modeling Markov switching ARMA-GARCH neural networks models and an application to forecasting stock returns. The Scientific World Journal, 2014. Doi: https:// doi.org/10.1155/2014/497941 google scholar
  • Bildirici, M., Sonüstün, B., & Gökmenoğlu, S. M. (2019, November). CDS-Stock market chaotic relationship-Turkish stock market case. In AIP Conference Proceedings (Vol. 2178, No. 1, p. 030068). Doi: https://doi.org/10.1063/1.5135466 google scholar
  • Bolaman Avcı, Ö. (2020). Interaction between CDS premiums and stock markets: Case of Turkey. Ömer Halisdemir Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 13(1), 1-8. Doi: https://doi. org/10.25287/ohuiibf.526638 google scholar
  • Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307-327. Doi: https://doi.org/10.1016/0304-4076(86)90063-1 google scholar
  • Celik, S., & Koc, Y. D. (2016). Relationship between sovereign credit default swap and stock markets: the case of Turkey. The Macrotheme Review, 5(4), 36-40. google scholar
  • Central Bank of the Republic of Turkey, the Electronic Data Delivery System, (Date accessed: 12/20/2022). google scholar
  • Ceylan, F., Tuzun, O., & Ekinci, R. (2018). The effect of credit default swaps (CDS) on BIST100 in Turkey: MS-VAR approach. Ecoforum journal, 7(1). google scholar
  • Chau, F., Han, C., & Shi, S. (2018). Dynamics and determinants of credit risk discovery: Evidence from CDS and stock markets. International Review of Financial Analysis, 55, 156-169. Doi: https:// doi.org/10.1016/j.irfa.2017.11.004 google scholar
  • Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 1057-1072. Doi: https://doi. org/10.2307/1912517 google scholar
  • Dieobold, F. X. (1986). Modeling the persistence of conditional variances: A comment. Econometric Reviews, 5(1), 51-56. Doi: https://doi.org/10.1080/07474938608800096 google scholar
  • Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 987-1007. Doi: https://doi.org/10.2307/1912773 google scholar
  • Esen, S., Zeren, F., & Şimdi, H. (2015). CDS and stock market: panel evidence under cross-section dependency. South-Eastern Europe Journal of Economics, 13(1). google scholar
  • Fei, F., Fuertes, A. M., & Kalotychou, E. (2017). Dependence in credit default swap and equity markets: Dynamic copula with Markov-switching. International Journal of Forecasting, 33(3), 662678. Doi: https://doi.org/10.1016/j.ijforecast.2017.01.006 google scholar
  • Forte, S., & Pena, J. I. (2009). Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS. Journal of Banking & Finance, 33(11), 2013-2025. Doi: https://doi. org/10.1016/j.jbankfin.2009.04.015 google scholar
  • Hamilton, J. D. (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica: Journal of the Econometric Society, 357-384. Doi: https://doi. org/10.2307/1912559 google scholar
  • Hammoudeh, S., & Sari, R. (2011). Financial CDS, stock market and interest rates: Which drives which?. The North American Journal of Economics and Finance, 22(3), 257-276. Doi: https://doi. org/10.1016/j.najef.2011.04.001 google scholar
  • Inclan, C., & Tiao, G. C. (1994). Use of cumulative sums of squares for retrospective detection of changes of variance. Journal of the American Statistical Association, 89(427), 913-923. Doi: https://doi.org/10.1080/01621459.1994.10476824 google scholar
  • Kandemir, T., Vurur, N. S., & Gökgöz, H. Türkiye’nin CDS primleri ile Bist100, döviz kurları ve tahvil faizleri arasındaki etkileşimin cDCC-EGARCH ve varyansta nedensellik analizleriyle incelemesi. Karamanoğlu Mehmetbey Üniversitesi Sosyal Ve Ekonomik Araştırmalar Dergisi, 24(42), 510-526. google scholar
  • Lamoureux, C. G., & Lastrapes, W. D. (1990). Persistence in variance, structural change, and the GARCH model. Journal of Business & Economic Statistics, 8(2), 225-234. google scholar
  • Longstaff, F. A., Mithal, S., & Neis, E. (2005). Corporate yield spreads: default risk or liquidity? New evidence from the credit default swap market. The Journal of Finance, 60(5), 221-353. google scholar
  • Mateev, M. (2019). Volatility relation between credit default swap and stock market: new empirical tests. Journal of Economics and Finance, 43(4), 681-712. Doi: https://doi.org/10.1007/s12197-018-9467-5 google scholar
  • Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of finance, 29(2), 449-470. Doi: https://doi.org/10.2307/2978814 google scholar
  • Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American economic review, 48(3), 261-297. google scholar
  • Ozsoy, T. (2022). Turkish Stock Market’s 80% rally fuels world’s top gains in 2022, Bloomberg, https://www.bloomberg.com/news/articles/2022-11-22/inflation-hit-turks-lift-stocks-to-world-s-top-2022-performer?leadSource=uverify%20wall, (Date accessed: 12/22/2022). google scholar
  • Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346. Doi: https://doi.org/10.1093/biomet/75.2.335 google scholar
  • Sanso, A., Carrion, J. L., & Arago, V. (2004). Testing for changes in the unconditional variance of financial time series. Revista de Economfa Financiera, 2004, 4, p. 32-52. google scholar
  • Saritaş, H., Kiliç, E., & Nazlioğlu, E. H. (2021). CDS primleri ve derecelendirme (raiting) notları ile BIST 100 endeksi arasındaki ilişkinin incelenmesi: Türkiye örneği. Maliye ve Finans Yazıları, (116), 73-92. Doi: https://doi.org/10.33203/mfy.854876 google scholar
  • Schwert, G. W. (1989). Why does stock market volatility change over time?. The Journal of Finance, 44(5), 1115-1153. Doi: https://doi.org/10.1111/j.1540-6261.1989.tb02647.x google scholar
  • Sovbetov, Y., & Saka, H. (2018). Does it take two to tango: Interaction between credit default swaps and national stock indices. Journal of Economics and Financial Analysis, 2(1), 129-149. google scholar
  • Sun, X., Wang, J., Yao, Y., Li, J., & Li, J. (2020). Spillovers among sovereign CDS, stock and commodity markets: A correlation network perspective. International Review of Financial Analysis, 68, 101271. Doi: https://doi.org/10.1016/j.irfa.2018.10.008 google scholar
  • Topaloğlu, E. E., & Ege, İ. (2020). Kredi temerrüt swapları (CDS) ile Borsa İstanbul 100 endeksi arasındaki ilişki: kısa ve uzun dönemli zaman serisi analizleri. İşletme Araştırmaları Dergisi, 12(2), 1373-1393. Doi: https://doi.org/10.20491/isarder.2020.918 google scholar
  • Ustaoğlu, E. (2022). Analysis of Relations between CDS, Stock Market, and Exchange Rate: Evidence from Covid-19. Ekonomi Politika ve Finans Araştırmaları Dergisi, 7(2), 301-315. Doi: https://doi. org/10.30784/epfad.1085420 google scholar
  • Wee, D. C., Chen, F., & Dunsmuir, W. T. (2020). Likelihood inference for Markov switching GARCH (1,1) models using sequential Monte Carlo. Econometrics and Statistics. Doi: https://doi. org/10.1016/j.ecosta.2020.03.004 google scholar
  • www.investing.com, (Date accessed: 12/20/2022). google scholar
There are 41 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Article
Authors

Veysel Karagöl 0000-0001-9939-0173

Publication Date June 26, 2023
Submission Date December 24, 2022
Published in Issue Year 2023

Cite

APA Karagöl, V. (2023). How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model. İstanbul İktisat Dergisi, 73(1), 513-531. https://doi.org/10.26650/ISTJECON2022-1223833
AMA Karagöl V. How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model. İstanbul İktisat Dergisi. June 2023;73(1):513-531. doi:10.26650/ISTJECON2022-1223833
Chicago Karagöl, Veysel. “How Vulnerable Is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model”. İstanbul İktisat Dergisi 73, no. 1 (June 2023): 513-31. https://doi.org/10.26650/ISTJECON2022-1223833.
EndNote Karagöl V (June 1, 2023) How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model. İstanbul İktisat Dergisi 73 1 513–531.
IEEE V. Karagöl, “How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model”, İstanbul İktisat Dergisi, vol. 73, no. 1, pp. 513–531, 2023, doi: 10.26650/ISTJECON2022-1223833.
ISNAD Karagöl, Veysel. “How Vulnerable Is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model”. İstanbul İktisat Dergisi 73/1 (June 2023), 513-531. https://doi.org/10.26650/ISTJECON2022-1223833.
JAMA Karagöl V. How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model. İstanbul İktisat Dergisi. 2023;73:513–531.
MLA Karagöl, Veysel. “How Vulnerable Is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model”. İstanbul İktisat Dergisi, vol. 73, no. 1, 2023, pp. 513-31, doi:10.26650/ISTJECON2022-1223833.
Vancouver Karagöl V. How Vulnerable is the Turkish Stock Market to the Credit Default Swap? Evidence from the Markov Switching GARCH Model. İstanbul İktisat Dergisi. 2023;73(1):513-31.