Empirical Analysis of the Relationship of Stock Market, Exchange Rate, CDS Spreads and VIX Index in Turkey

Abstract

With the acceleration of global integration processes, it is seen that the common point in the structure of the crises is, in general, the increases in the country's risk premium and the volatility in large open economies. The aim of this study is to examine the relationships between stock market index, exchange rate, risk premium (CDS) and fear index (VIX) in Turkey. For this, ARDL test was used. The period after February 2001, which is a structural turning point for the Turkish economy as well as for data availability, was used as the analysis period. Unlike the literature, both the CDS premium, which represents the country risk premium, and the VIX index, which reflects the foreign risk appetite and thus the foreign conjuncture, are used in the same model. In this way, it has been tried to shed light on the question of whether the effects on the stock market index are at the same level as a result of using the CDS and VIX indicators in the same model. According to the empirical findings, the exchange rate, CDS premium and VIX index affect the stock market index in Turkey. In Turkey, which is a country integrated with global markets, this result is considered within the expectations. In other words, changes in exchange rate, country risk premium and foreign risk appetite have an impact on stock market movements. Our results show that the CDS premium, which represents the country risk, is an important indicator for the BIST 100 compared to the VIX index, which represents the global risk appetite. In this case, it highlights the importance of the variables examined in the stock markets.