News-Implied Sovereign Default Risk

A Twitter-Based Economic Policy Uncertainty Index: Expert Opinion and Financial Market Dynamics in an Emerging Market Economy

“…Nevertheless, there are some differences between the approach followed by these authors and ours. While [8] implement a panel data analysis based on a bi-variate relation between the CDS spread and their news-based measure of sovereign risk, we find that dynamic inter-relationships among changes in expert opinion and other financial indicators help to determine changes in Turkey's country risk premium based on a multivariate analysis. This further provides evidence about the interactive relationship between expert opinion represented by the TEPU index and the different financial indicators in our analysis.…”

“…The assessment of economic policy uncertainty by these selected experts is similar, in some ways, to the assessment of risk and uncertainty by the US economists questioned in the highly regarded Survey of Professional Forecasters that is conducted by the Federal Reserve Bank of Philadelphia. 8 With the increased capacity of Twitter to provide up-to-date documentary on world events, it is inevitably getting harder to extract useful information from the bulk data generated daily by users. 9 As mentioned in the Introduction, our paper differs from existing studies that use bulk Twitter data.…”

“…Table 4 shows that changes in the TEPU index emerges as the key predictor for changes in the CDS spread for the samples ending in 2021 and 2019. In a related analysis, [8] create a realtime News-implied Sovereign Risk Index (NSRI) for over 100 countries by applying text search methods to socioeconomic, political and financial news. 25 They show that lagged changes in this index are a significant predictor of changes in a country's CDS spread, especially at the monthly frequency, after controlling for the effects of other domestic and global macro-economic variables.…”

“…25 They show that lagged changes in this index are a significant predictor of changes in a country's CDS spread, especially at the monthly frequency, after controlling for the effects of other domestic and global macro-economic variables. Thus, as in [8], changes in expert opinion about economic policy issues help to predict movements in the CDS spread. Nevertheless, there are some differences between the approach followed by these authors and ours.…”

“…In particular, the TEPU index and the USD/TRY exchange rate are two key indicators which reflect monetary policy surprises and monetary policy announcements arising from the pursuit of unconventional monetary policy in recent years in Turkey. The TEPU index also emerges as a key predictor of changes in the CDS spread, suggesting that expert opinion itself contains information useful for evaluating the country's risk premium [8]. The fluctuations in the TEPU index together with the USD/TRY exchange rate and the CDS spread also help predict fluctuations in equity markets in Turkey.…”