Affiliation:
1. Akdeniz University, Turkey
Abstract
Sovereign credit risk is an important consideration for investors, academics, and practitioners in the countries, and CDS spreads play a leading role to handle credit risk. The CDS premium has been mainly used as a market-based reference for sovereign credit risk. The increasing popularity of CDS spreads has brought into question whether there is a relation between CDS spreads and financial factors. To this end, the aim of this research is to explore the effect of financial factors on CDS in Turkey using the ARDL models. The results confirm that Brent and VIX volatility have an asymmetric relationship with CDS spreads in Turkey. The empirical findings suggest that a positive shock in VIX causes an increase in CDS spreads. The asymmetry in the relationships between CDS and financial factors highlights important policy implications for portfolio and risk management and financial stability.
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