The effect of macro-economic indicators on credit default swaps (CDS) the country risk indicator: Turkey case

Credit default trading (CDS) is a financial insurance agreement that provides the transfer of credit risk between the parties. Investment decisions and economic relations in globalized world economies are affected by the credit ratings of the countries. Country credit ratings provide information about the capacity to pay the country's debts and are critical for investors. CDS premiums are considered as an alternative to the credit grades determined by credit rating agencies. Credit rating agencies such as Moody's, Standard & Poor's and Fitch Ratings have been used for a long time for a long time to measure the country's loan risk but criticizing credit rating agencies started especially after the global financial crisis in 2008. Credit rating agencies were insufficient to foresee the high -interest banking crisis, the biggest example of this is that the American Investment Bank, Lehman Brothers, had high credit ratings at that time, although the loan risk -related loan risk increased, and as a result, the bank's default falls. The decrease in confidence in credit rating agencies has brought CDS premiums to the forefront as a derivative product showing an alternative country's credit risk. In this context, the effect of macroeconomic variables on CDS premiums, which are accepted as a indicator of the country's risk, is investigated in our master's thesis. In the first part of our thesis, the concepts of risk, state credit risk and country risk are mentioned. In the second part, the general functioning of credit default clearing, its elements, determinants of CDSs, usage purposes, types, risks that may occur in CDS, CDS regulatory organizations and CDS premiums are mentioned and pricing. In the last part of our thesis, Johansen Co -Integration Analysis was performed for the investigation of the relationships between macroeconomic variables and BIST100 index data and CDS premiums, and then the vector error correction model (VICM) analysis was performed in order to test the deviation trends between the data in the short term. Granger causality test was used to determine the two -way causality relationship between CDS premiums and variables. In the results of our analysis, there are long -term relationships between CDS premiums and variables and a granger causality relationship between the variables.