International Journal of Financial Studies (Jul 2016)

Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro

  • Muhsin Kar,
  • Tayfur Bayat,
  • Selim Kayhan

DOI
https://doi.org/10.3390/ijfs4030014
Journal volume & issue
Vol. 4, no. 3
p. 14

Abstract

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In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015.

Keywords