The Relationship Between Geopolitical Risk and Credit Default Swap Premium: Evidence from Turkey*
Articles
Esra Soyu Yıldırım
Aksaray University, Vocational School of Social Sciences
Munise Ilikkan Özgür
Aksaray University, Faculty of Economics and Administrative Sciences
Published 2023-05-05
https://doi.org/10.15388/Ekon.2023.102.1.5
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Keywords

CDS
Geopolitical Risk
ARDL
Time Varying Causality
Turkey

How to Cite

Soyu Yıldırım, E. and Ilikkan Özgür, M. (2023) “The Relationship Between Geopolitical Risk and Credit Default Swap Premium: Evidence from Turkey*”, Ekonomika, 102(1), pp. 81–101. doi:10.15388/Ekon.2023.102.1.5.

Abstract

This study investigates the relationship between the geopolitical risk in Turkey arising out of the war and terror incidents happened in the region during the period 2003:01-2020:06 with the CDS premium. A two-step approach is undertaken for this assessment, in which an ARDL limit test and then a time-varying symmetric and asymmetric causality test are applied to study the possible causality vis-a-vis the subperiods. The ARDL limit test does not reject the hypothesis that there is a co-integrated relationship between CDS premium and geopolitical risk index. In addition, the time-varying symmetric and asymmetric test also identifies causality between CDS premium and geopolitical risk, and establishes periods where the latter influences the former variable both in a positive and negative way. In summary, both the ARDL limit test and the time-varying symmetric and asymmetric test deduce a causal relationship between the studied variables.

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