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The Impact of Credit Default Swaps (CDS) on Foreign Direct and Portfolio Investment: The Case of Turkey

Author

Listed:
  • Şener İlter

    (Anadolu University)

  • Remzi Gök

    (Dicle University)

Abstract

This paper investigates the effect of credit default swaps (CDS) on foreign direct (FDI) and portfolio investments (FPI) by using quarterly observations during the period 2005Q4-2019Q3 in Turkey. The findings indicate the changes in CDS correlate negatively with the FDI and FPI while the correlation coefficient between the last two variables is significantly positive at the 1% level. The changes in FDI Granger-cause the movements in CDS with no reverse direction. The test, however, detects a bidirectional causal relationship between the changes in FPI and CDS. The results yield important imlications for sustainable financial stability and economic growth for policymakers.

Suggested Citation

  • Şener İlter & Remzi Gök, 2021. "The Impact of Credit Default Swaps (CDS) on Foreign Direct and Portfolio Investment: The Case of Turkey," Journal of Finance Letters (Maliye ve Finans Yazıları), Maliye ve Finans Yazıları Yayıncılık Ltd. Şti., vol. 36(Special2), pages 233-252, January.
    • Handle: RePEc:acc:malfin:v:36:y:2021:i:special2:p:233-252
    DOI: https://doi.org/10.33203/mfy.844208
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    More about this item

    Keywords

    CDS; FDI; FPI; Fourier Causality;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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