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The Nexus between CDS Premiums and Exchange Rates: Evidence from BRICS Countries and Türkiye

Author

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  • Yüksel İltaş
  • Fatih Güzel

Abstract

This study investigates the long-term relationship between Credit Default Swap (CDS) premiums and exchange rates among the BRICS-T countries (Brazil, Russia, India, China, South Africa, and Turkey) known for their significant impacts on both regional and global dynamics, advanced industrialization, rapid economic growth, and considerable profit potential. Utilizing the RALS-LM unit root test and the RALS-EG cointegration test, and Hacker and Hatemi-J bootstrap causality test, this research circumvents the limitations commonly associated with traditional econometric approaches. A comprehensive and up-to-date dataset, reflecting intensive global and regional movements, was employed, consisting of daily data from January 2020 to June 2024. The findings indicate a long-term relationship between CDS premiums and exchange rates in all countries except Turkey. As the relationship is positive, it can be interpreted that an increase in the exchange rate will increase the CDS premium of countries. In terms of causality, strong evidence that the CDS premium is the cause of the exchange rate is only valid for Turkey. For Brazil, Russia, China and South Africa, we find that the exchange rate is the cause of the CDS premium. As a result, it is concluded that exchange rate movements may affect CDS premiums in these countries.

Suggested Citation

  • Yüksel İltaş & Fatih Güzel, 2025. "The Nexus between CDS Premiums and Exchange Rates: Evidence from BRICS Countries and Türkiye," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 9(4), pages 796-811.
    • Handle: RePEc:ahs:journl:v:9:y:2025:i:4:p:796-811
    DOI: https://doi.org/10.30784/epfad.1583969
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    References listed on IDEAS

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    1. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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    More about this item

    Keywords

    BRICS-T; Exchange Rate; CDS Premiums; RALS-LM Unit Root Test; RALS-EG Cointegration Test;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G19 - Financial Economics - - General Financial Markets - - - Other

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