(Investigating the Cointagration and Causality Relationships Between Developing Countries’ CDS Spreads)

Abstract

Purpose – The aim of this study is to investigate co-movements and interactions between Turkey and BRICS countries. For this purpose cointegration and causality analysis are performed using CDS spreads of those countries. Design/methodology/approach – In order to examine the long run cointegrations between CDS spreads, ARDL Bounds Test is applied. Toda-Yamamoto approach is used to determine the causality relationships. Data period covers December 15, 2015 – May 18, 2020. Findings – Performing ARDL approach, CDS spreads of Turkey are found cointegrated with Brasil and Russia, however this relationships seem not to be stable for the long run. On the other hand, Toda-Yamamoto results suggest that causality relationships exist between Turkey and BRICS countries. Discussion – Cointegrations of CDS spreads of Turkey with Brasil and Russia suggest that ther are common global factors affecting country risks of those countries, while indosyncratic factors induce deterioration of long run co-movements. In short run it is possible to state that any factors affecting the risks in one country causes a reaction in other countries, basing on bi-direcitonal causalities.