Analysis of the relationship between credit default swaps and Borsa Istanbul (BIST) 100 index

Credit Default Swap contracts, in its simplest definition, are a kind of financial settlement method made against the inability to fulfill the debt arising from credit risk. Credit Default Swaps, which are also used as a hedging technique, are best known as CDS (Credit Default Swap). CDS premiums, which include the country risk to a certain extent, are accepted as the numerical version of the countries' non-repayment risk. Research shows that the expectations of investors with a risk appetite about not returning their investments while taking risks, show that CDS premiums are considered as an important variable in analysis and investment decisions. In this study, it is aimed to determine the long-term relationship between Credit Default Swap premiums and Borsa Istanbul BIST-100 Index. For this purpose, the data set consisting of Turkey's five-year CDS premiums and daily closing values of the BIST-100 Index for the period 2 January 2001- 31 December 2020 was used. ARDL bounds test approach was used as research model. As a result, a negative and statistically significant relationship was found between the variables in the long run. According to the estimation result of the established ARDL model, the effect of a shock on the index comes to equilibrium at the end of 1 day for BIST-100 and 6 days for CDS premiums. In addition, according to the prediction value of the Error Correction Model, which determines the direction of short-term deviations in the study, the effect of short-term shocks decreases by 7 percent after a period and approaches equilibrium.