Sovereign Credit Default Swap (Cds) Spreads Changes in Various Economic Conjunctures: Evidence From Turkey by Machine Learning Algorithms

Abstract

The study aims to define the sources of Turkey's sovereign CDS spread changes to develop policies that stabilize CDS spreads since they have a volatile and increasing trend, especially in the last two years.In this context, monthly data of 13 factors related to international, macroeconomic, and market between 2011/1 and 2019/12 are used by dividing the dataset into three periods as the full period (2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018)(2019), the stability period (2011)(2012)(2013)(2014)(2015)(2016)(2017), and the macroeconomic turbulent period (2018)(2019) and performing 4 different machine learning algorithms. The empirical results prove that (i) Treasury bond interest rate should be lower than 8% in the stability period and gold prices should be lower than TL 5.500 in the macroeconomic turbulent period to have low-level CDS spreads; (ii) NPL volume has no significant effect on in any period examined; (iii) the significance of factors on sovereign CDS spreads vary over the periods.

Macroeconomic Determinants of the Term Structure of Sovereign Credit Default Swap (CDS) Spread: Insights from MIDAS Regression

“…These results emphasize the significance of reserves as a determinant of changes in Sovereign CDS Term Premium in the examined countries. These findings align with the research conducted by Kartal et al (2022) andRathi et al (2022), which similarly indicated a negative impact of changes in reserves on CDS spread, implying that an increase in reserves reduces sovereign risk spread. 7 displays the outcomes of MIDAS regression, investigating the relationship between Sovereign CDS Term Premium and terms of trade for the countries in the sample.…”

Dynamic link between central bank reserves, credit default swap spreads, and foreign exchange rates: Evidence from Turkey by time series econometrics

“…Based on the empirical findings, the results confirm the hypotheses, which are examined in the study. The outcomes of the study are generally consistent with the studies [ 10 , 11 , 27 ] for CDS [ 12 , 31 ], for FX, and [ [13] , [14] , [15] , [16] , 19 , 24 , 26 , 27 ] for CBR. Hence, the results are important because they provide details regarding the dynamic link between CBR, CDS spreads, and USD/TRY in Turkey.…”

“…Economic growth, inflation, interest rates, credit/deposit ratio, credit growth, non-performing loans, stock market indices, and unemployment are typical examples of these macroeconomic and financial indicators [ [5] , [6] , [7] , [8] , [9] ]. Although there are many indicators, CBR, CDS spreads, and FX rates are the ones, which are the most important indicators reflecting the soundness, riskiness, vulnerability, and predictability of countries [ [10] , [11] , [12] ].…”

“…In the literature, various studies scrutinize CBR [ 15 , [21] , [22] , [23] , [24] , [25] ], CDS spreads [ 10 , 11 , 16 , [26] , [27] , [28] ], and FX rates [ 12 , 26 , [29] , [30] , [31] ]. Even, some studies examine some of these indicators with other indicators in the same study.…”