An Outlier in the Fragile Five: A Comparative Analysis of the Determinants of CDS Premiums

 This study, covering the period from 2010 to 2024 following the 2008 Global Financial Crisis, aims to empirically investigate the relationship between CDS spreads and portfolio investments, exchange rates, inflation, economic growth, and geopolitical risk in the Fragile Five countries (Brazil, India, Indonesia, Turkey, and South Africa). Using the Driscoll-Kraay robust estimator of the Panel Data Method in the analysis process, it was found that inflation is the strongest determinant of increasing country risk and that, contrary to expectations, portfolio investments increase the risk premium due to their speculative nature. The most impressive and original aspect of the study is that it proves Turkey stands out as a qualitative outlier from this group through a subgroup analysis that undermines the homogeneity of the “Fragile Five” definition. Indeed, when Turkey is removed from the sample, the emergence of geopolitical risk as significant for other countries and the reversal of the exchange rate effect strikingly reveal the structural differences within the group. Accordingly, the study emphasizes the necessity of country-specific policies targeting permanent disinflation and direct foreign investment, particularly for Turkey, rather than a uniform approach for the Fragile Five countries.