Research Article
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Year 2023, Volume: 16 Issue: 1, 219 - 220, 01.02.2023
https://doi.org/10.17261/Pressacademia.2023.1699

Abstract

References

  • Barro, R. J. (2006). Rare disasters and asset markets in the twentieth century. Quarterly Journal of Economics, 823–866.
  • Byström, H. (2006). Credit default swaps and equity prices: The iTraxx CDS index market. Financial Analysts Journal, 62, 65–76.
  • Calice, G. and Zeng, M. (2021). The term structure of sovereign credit default swap and the cross‐section of exchange rate predictability. International Journal of Finance & Economics, 26(1), 445-458.
  • Chan, K.C., Fung, H. and Zhang, G. (2008). On the relationship between Asian credit default swap and equity markets. Journal of Asian Business Studies, 4(1), 2-11.
  • Coronado, M., Corzo, M.T. and Lazcano, L. (2012). A case for Europe: The relationship between sovereign CDS and stock indexes. Frontiers in Finance and Economics, 9(2), 32-63.
  • Coudert, V. and Gex, M. (2011). Credit Default Swap and Bond Markets: Which Leads the Other? CEPII, Working Paper No. 2011-02 February.
  • Feng, Q.; Sun, X, Liu, C.; Li, J. (2021). Spillovers between Sovereign CDS and Exchange Rate Markets: The Role of Market Fear”, The North American Journal of Economics and Finance, No. 101308.
  • Fontana, A., and Scheicher, M. (2010). An Analysis of Euro Area Sovereign CDS, European Central Bank Working Paper Series 1271.
  • Forte, S., Pena, J.I. (2009). Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS. Journal of Banking and Finance, 33, 2013–2025.
  • Gonzalo, J., Granger, C. (1995). Estimation of common long-memory components in cointegrated systems. Journal of Business and Economic Statistics, 13(1), 27-35.
  • Gök, R., Kara, E. (2021). Testing for causality among CDS, interest, and exchange rates: New evidence from the Granger coherence analysis. Eskişehir Osmangazi Üniversitesi İktisadi ve İdari Bilimler Dergisi, 16(2), 427-445.
  • Hasbrouck, J. (1995). One security, many markets: Determining the contributions to price discovery. The Journal of Finance, 50(4), 1175-1199.
  • 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.
  • Heil, C.E. and Walnut, D.F. (1989). Continuous and Discrete Wavelet Transforms. SIAM Review, 31, 628-666.
  • Kim S., J., Salem, L., Wu, E. (2015). The role of macroeconomic news in sovereign CDS markets: Domestic and spillover news effects from the US, the Eurozone and China. Journal of Financial Stability, 18, 208–224.
  • Longstaff, P.F., Mithal, S., Neis, E. (2005). The credit-default swap market: is credit protection priced correctly? Journal of Finance, 60, 2213–2253.
  • Lustig, H., Verdelhan, A., (2007). The cross section of foreign currency risk premia and consumption growth risk. American Economic Review 97, 89–117
  • Norden, L., Weber, M. (2009). The co-movement of credit default swap, bond and stock markets: An empirical analysis. European Financial Management, 15, 529–562.
  • O’Kane, D. (2012). The Link between Eurozone Sovereign Debt and CDS Pries. Bankers, Markets & Investors, No. 177, March-April 2012.
  • Shear, F., & Butt, H. A. (2017). Relationship between stock and the sovereign CDS markets: A panel VAR based analysis. South Asian Journal of Management Sciences, 11(1), 52-67.

INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY

Year 2023, Volume: 16 Issue: 1, 219 - 220, 01.02.2023
https://doi.org/10.17261/Pressacademia.2023.1699

Abstract

Purpose- Financial agents pay a great attention to the relationship between credit default swaps (CDS) and other financial assets. Being considered as a financial asset and then as a possible component of a portfolio, CDS’s relationship with other financial assets is crucial in order to compose an efficient portfolio which should contain the least correlated assets. Our study, provide a different approach than the bulk of existing literature which consider the relation between returns/levels or between volatilities and their impact on the volatility (leverage effects) as well as volatilities may affect returns/levels/rates in BIST100 by focusing on several economic and financial determinants for the investment horizon of investors and policymakers for their decision-making processes.
Methodology- We investigate the relationship between sovereign CDS spread (level and volatility) and (return/level and volatility) of financial series (bond yield, currency exchange, stock index) by applying wavelet coherence analysis to capture the interrelation between economic and financial determinants during different investment horizons due to the account of the time-frequency domain.
Findings- According to empirical results, firstly, the direction of causality between series depends on the frequency domain. A series may cause the other series at medium term and may be influenced by this second series at short term. Secondly, the relationship between the CDS spread (volatility) and retained financial series changes through time while depending the type of financial asset. Lastly, the interconnectedness between returns/rates/levels is different from the relationship between volatilities and between returns/rates/levels and volatilities.
Conclusion- Our findings show that the CDS 2-year spread and interest rates have a positive relationship most of the time in the medium term, mostly in the 2017-2019 period, while CDS spreads and the USDTRY have similar impacts in the medium and early long term. Despite having previously observed such a positive relationship between CDS and other economic determinants, CDS spreads have a negative impact on stock exchange returns in the medium term, spanning nearly a decade from 2008 to 2016.

References

  • Barro, R. J. (2006). Rare disasters and asset markets in the twentieth century. Quarterly Journal of Economics, 823–866.
  • Byström, H. (2006). Credit default swaps and equity prices: The iTraxx CDS index market. Financial Analysts Journal, 62, 65–76.
  • Calice, G. and Zeng, M. (2021). The term structure of sovereign credit default swap and the cross‐section of exchange rate predictability. International Journal of Finance & Economics, 26(1), 445-458.
  • Chan, K.C., Fung, H. and Zhang, G. (2008). On the relationship between Asian credit default swap and equity markets. Journal of Asian Business Studies, 4(1), 2-11.
  • Coronado, M., Corzo, M.T. and Lazcano, L. (2012). A case for Europe: The relationship between sovereign CDS and stock indexes. Frontiers in Finance and Economics, 9(2), 32-63.
  • Coudert, V. and Gex, M. (2011). Credit Default Swap and Bond Markets: Which Leads the Other? CEPII, Working Paper No. 2011-02 February.
  • Feng, Q.; Sun, X, Liu, C.; Li, J. (2021). Spillovers between Sovereign CDS and Exchange Rate Markets: The Role of Market Fear”, The North American Journal of Economics and Finance, No. 101308.
  • Fontana, A., and Scheicher, M. (2010). An Analysis of Euro Area Sovereign CDS, European Central Bank Working Paper Series 1271.
  • Forte, S., Pena, J.I. (2009). Credit spreads: An empirical analysis on the informational content of stocks, bonds, and CDS. Journal of Banking and Finance, 33, 2013–2025.
  • Gonzalo, J., Granger, C. (1995). Estimation of common long-memory components in cointegrated systems. Journal of Business and Economic Statistics, 13(1), 27-35.
  • Gök, R., Kara, E. (2021). Testing for causality among CDS, interest, and exchange rates: New evidence from the Granger coherence analysis. Eskişehir Osmangazi Üniversitesi İktisadi ve İdari Bilimler Dergisi, 16(2), 427-445.
  • Hasbrouck, J. (1995). One security, many markets: Determining the contributions to price discovery. The Journal of Finance, 50(4), 1175-1199.
  • 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.
  • Heil, C.E. and Walnut, D.F. (1989). Continuous and Discrete Wavelet Transforms. SIAM Review, 31, 628-666.
  • Kim S., J., Salem, L., Wu, E. (2015). The role of macroeconomic news in sovereign CDS markets: Domestic and spillover news effects from the US, the Eurozone and China. Journal of Financial Stability, 18, 208–224.
  • Longstaff, P.F., Mithal, S., Neis, E. (2005). The credit-default swap market: is credit protection priced correctly? Journal of Finance, 60, 2213–2253.
  • Lustig, H., Verdelhan, A., (2007). The cross section of foreign currency risk premia and consumption growth risk. American Economic Review 97, 89–117
  • Norden, L., Weber, M. (2009). The co-movement of credit default swap, bond and stock markets: An empirical analysis. European Financial Management, 15, 529–562.
  • O’Kane, D. (2012). The Link between Eurozone Sovereign Debt and CDS Pries. Bankers, Markets & Investors, No. 177, March-April 2012.
  • Shear, F., & Butt, H. A. (2017). Relationship between stock and the sovereign CDS markets: A panel VAR based analysis. South Asian Journal of Management Sciences, 11(1), 52-67.
There are 20 citations in total.

Details

Primary Language English
Subjects Finance, Business Administration
Journal Section Articles
Authors

Sukriye Tuysuz This is me 0000-0001-8391-6521

Mert Gul This is me 0000-0002-6605-3274

Publication Date February 1, 2023
Published in Issue Year 2023 Volume: 16 Issue: 1

Cite

APA Tuysuz, S., & Gul, M. (2023). INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY. PressAcademia Procedia, 16(1), 219-220. https://doi.org/10.17261/Pressacademia.2023.1699
AMA Tuysuz S, Gul M. INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY. PAP. February 2023;16(1):219-220. doi:10.17261/Pressacademia.2023.1699
Chicago Tuysuz, Sukriye, and Mert Gul. “INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY”. PressAcademia Procedia 16, no. 1 (February 2023): 219-20. https://doi.org/10.17261/Pressacademia.2023.1699.
EndNote Tuysuz S, Gul M (February 1, 2023) INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY. PressAcademia Procedia 16 1 219–220.
IEEE S. Tuysuz and M. Gul, “INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY”, PAP, vol. 16, no. 1, pp. 219–220, 2023, doi: 10.17261/Pressacademia.2023.1699.
ISNAD Tuysuz, Sukriye - Gul, Mert. “INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY”. PressAcademia Procedia 16/1 (February 2023), 219-220. https://doi.org/10.17261/Pressacademia.2023.1699.
JAMA Tuysuz S, Gul M. INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY. PAP. 2023;16:219–220.
MLA Tuysuz, Sukriye and Mert Gul. “INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY”. PressAcademia Procedia, vol. 16, no. 1, 2023, pp. 219-20, doi:10.17261/Pressacademia.2023.1699.
Vancouver Tuysuz S, Gul M. INVESTIGATING THE INTERRELATION BETWEEN SOVEREIGN CDS AND FINANCIAL SERIES USING WAVELET COHERENCE ANALYSIS – CASE OF TURKEY. PAP. 2023;16(1):219-20.

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