Dynamic relationship between Turkey and European countries during the global financial crisis

Date

2014-06-01

Author

Sensoy, Ahmet
Soytaş, Uğur
Yildirim, Irem
Hacıhasanoğlu, Erk

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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This study examines the relationship between time-varying risk perceptions of investors towards major European countries and Turkey. In that manner, we first obtain the dynamic conditional correlations between the credit default spreads (CDSs) of Turkey and 13 European countries from September 2004 to April 2013. Next, we endogenously detect the shifts in these dynamic correlation levels using a penalized contrast methodology. Accordingly, we find positive level shifts in all correlations following the US crisis. The upward trend in all CDS correlations holds during the eurozone debt crisis, but positive changes in correlations are not flagged as level shifts by the model, except in a few cases. The results suggest that Turkey is not immune to global financial conditions and there is integration between Turkey and the major European economies in terms of risk perception after the global financial crisis.

Subject Keywords

Eurozone crisis, Penalized contrast function, Dynamic conditional correlation, CDS, Sub-prime crisis

URI

https://hdl.handle.net/11511/43462

Collections

Department of Business Administration, Article