Relationship of SDS premium and exchange indexes-BRICS countries and Türkiye example

The main purpose of the credit default swaps (CDS) is not only to hedge credit risk, but also to be used as a risk indicator for the country. International investors consider CDS premiums as an important data when making decisions about their direct and portfolio investments in a country. The fact that CDS premiums tend to decrease/increase, can be considered as a positive or negative sign by the investors that there will be an increase/decrease in stock market index indices. This study consists of three steps. In the first step, the causality relationship between BRICS countries and Türkiye's indexes of the CDS premiums and indicative indices1 of the stock market and then the causality relationship between BRICS countries and Türkiye's indexes of the CDS premiums and the banking indices were examined, respectively. As an indicator index, BIST100 in Türkiye, Bovespa Index in Brazil, Moex Index in Russia, NIFTY Index in India, Shangy Index in China, SOAF Index in South Africa were taken into consideration. The study covers the period between January 2011 and June 2021. Data on CDS, indicative stock market indexes and banking indices are based on monthly closing figures. In these 6 different economies, 12 time series analyzed for both models. In the second step, the contribution of foreign investor ratios in the effect of CDS premiums on the indicative indices of stock markets and banking indices in Türkiye was investigated. The date range and monthly closing data of the previous step were taken in this step and a time series containing 126 observations was created. In the third step, an econometric model was tested on the moderator role of foreign investor ratios in the effect of CDS premiums on BIST100 share values. In this model, a balanced panel data set was constructed by taking the observations of all variables for 97 companies in the BIST100 between the last quarter of 2019 and the second quarter of 2021. As a result of the study, in the economies other than China, it was observed that the causality relationship between the variables was from the indicator indices to the credit risk premiums and in China no statistical causality relationship was found between the variables for both models. Credit risk premiums in the Turkish economy, on the other hand, have been found to have a significant and negative effect on the banking index, and it can be said that this effect is independent of the foreign investor ratio variable. The insignificance of the model and the parameter for the low rate of foreign investors means the acceptance of the null hypothesis that the estimated parameter is equal to zero. In the panel data models created for medium and high foreign investor ratios, the parameters are statistically different from zero and when the absolute value is analyzed, it was observed that the difference is in favor of the firms with a high foreign investor ratio. To put it more clearly, as the foreign investor ratio of the companies in BIST100 increases, the negative effect of the country credit risk premium on stock prices also increases. This study provides important information to policy decision makers in terms of explaining the behavior of corporate investors in ensuring financial growth. Keywords : Credit default swaps, stock exchange and banking index, foreign investor rate