(The Relationship between Credit Default Swaps and Borsa Istanbul 100 Index: The Short and Long Term Time Series Analysis)

Abstract

Purpose – This study that focuses on the analyzing the short and long terms impacts of Turkey’s CDS on return of BIST100 Index in 2010:01-2019:06 periods. Design/methodology/approach – Considering the the short and long term time series analysis used to process with constant, constant-trend, level shift, level shift-trend, trend shift, regime shift, regime-trend shift models. Findings – It was determined that both series were stationary at the level. The cointegration was determined relationship between CDS and return of BIST100. A negative relationship was found between CDS and BIST100 return in the long term by 25% according to FMOLS and CCR and 43% to DOLS. According to short-term error correction model results, it was found that the short-term deviations in return of BIST100 equilibrated after 2.43 months and 41.1% of the deviations in return of BIST100 disappeared. Granger causality test results, there is Granger causality from CDS to BIST100 return. As a result of the impulse-response functions, it was determined that a shock in CDS caused 0.013 decrease return of BIST100 in 2 months and this effect disappeared in 5 months and converged to zero. According to variance decomposition, It has been found that approximately 0.20% of the changes in BIST100 return as of the 9th month is caused by CDS variable. Discussion – It is possible to say that the negative relationship between the CDS and BIST100 return reached in the research is supported theoretically and the market return decreases as the country risk increases.