Volatility Spillover Effects From Global and National Variables to Sovereign CDS Spreads: Evidence From Turkey

Süleyman Demirel Üniversitesi Vizyoner Dergisi, 2020

17 Pages Posted: 26 Mar 2020

See all articles by Çiğdem Kurt Cihangir

Çiğdem Kurt Cihangir

Hitit University - Faculty of Economics and Administrative Sciences

Date Written: January 30, 2020

Abstract

In this study global and national variables that affect the sovereign Credit Default Swaps (CDS) spreads for Turkey are examined. The study utilities monthly time-series data, spanning from August of 2009 to September 2018. Empirical analysis is done in two steps: In the first step, the causality relationships between related variables are investigated by the Granger causality test. In the second step, the effect of symmetric and asymmetric spillover effects on sovereign CDS spread is determined. The findings show that both national and global shocks are relevant for Turkey’ sovereign CDS spreads volatility, but national variables tend to have a greater impact. Furthermore, there exist mean asymmetric effects for external fragility, domestic interest rate and the VIX variables. It is tested that sovereign CDS spreads react more sharply to domestic interest rates and VIX bad news than a positive shock of equal size. Generally, both uncertainties in global conditions and the relatively high need for external borrowing of Turkey necessitates a multi-faceted policy-making and management process.

Keywords: Sovereign CDS Spreads, Volatility Spillover, External Fragility, Global Liquidity

JEL Classification: C32, E44, F34, H63, G30

Suggested Citation

Cihangir, Çiğdem Kurt, Volatility Spillover Effects From Global and National Variables to Sovereign CDS Spreads: Evidence From Turkey (January 30, 2020). Süleyman Demirel Üniversitesi Vizyoner Dergisi, 2020, Available at SSRN: https://ssrn.com/abstract=3546716

Çiğdem Kurt Cihangir (Contact Author)

Hitit University - Faculty of Economics and Administrative Sciences ( email )

Turkey

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