Regime Switching Determinants of Sovereign CDS Spreads: Evidence from Turkey

Umurcan Polat ()
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Umurcan Polat: Marmara University, Turkey

Eurasian Journal of Economics and Finance, 2017, vol. 5, issue 4, 124-141

Abstract: In this study, it is assessed the main determinants of sovereign CDS spreads in Turkey from January 2006 to December 2015. Before delving into the nonlinear Markov regime-switching model estimation, a conventional one-state linear model is estimated answering to what extent the sovereign credit risk is affected in between global and country-specific market variables and by credit ratings announcement changes. In broad strokes, the regime-switching analysis reveals that among domestic variables, it is the foreign exchange rate that affects the sovereign credit risk more in more volatile periods and among global variables, the indicators standing for global volatility risk premiums and international liquidity primarily influence the changes in the sovereign CDS spread in turbulent regimes whereas proxies for global risk free rate are significant more in tranquil regimes.

Keywords: Sovereign CDS Spread; Markov Regime-Switching; Turkey (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejefjr:v:5:y:2017:i:4:p:124-141

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