Analyzing the Asymmetric Effects of Exchange Rate on the Stock Price Index of Tehran Stock Exchange: the NARDL Approach

Document Type : Original Article

Authors

1 Professor of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan

2 PhD Candidate in Economics, Faculty of Administrative Sciences and Economics, University of Isfahan

Abstract

The stock market is one of the most prominent examples of financial markets, which has always attracted economists’ attentions in terms of understanding its nature, the mode of its performance, and factors affecting it. Meanwhile, the foreign exchange market can be considered as a competitor for the stock market and, depending on the export or import-based nature of the economy, may affect the country and the stock market differently. Empirical research has indicated positive and negative effects of the exchange rate on stock price index. Therefore, considering the significance of this issue, the aim of this study was to analyze the asymmetric effects of the exchange rate on stock price index in the period of 2001/1-2017/3using seasonal data for Iran's economy. To this end, the nonlinear autoregressive distributed lag (NARDL) model was estimated and the effects of exchange rate, interest rate, real liquidity and consumer price index on the stock price index were investigated. The results show that the decrease in the exchange rate has a positive and significant effect on the stock price index in the short and long-run, but the increase in the exchange rate in both periods has not significant effect on the stock market. Therefore, the exchange rate has an asymmetric effect on the stock price index.

Keywords

References

- Abbasi, N. H., Mohammadi, S., & Ebrahimi, S. (2017). Dynamics of the relationship between macro variables and stock market index. Journal of Management and Finance, 16, 82-61(In Persian).
- Abouwafia, H., E., & Chambers, M., J. (2015). Monetary Policy, Exchange Rates and Stock Prices in the Middle East Region, International Review of Financial Analysis, 37, 14–28.
- Adibpoor, M. (2016). Measure the effect of exchange rate uncertainty on the stock price index of the listed companies in the stock exchange. Journal of Macroeconomics, 22, 105-131 (In Persian).
- Ajayi, R. A., & Mougoue, M., (1996). On the Dynamic Relation between Stock Prices and Exchange Rates. The Journal of Financial Research, 19, 193-207
- Aydemir, O., & Demirhan, E., (2009). The relationship between stock prices and exchange rates: Evidence from Turkey. International Research Journal of Finance and Economics 23, 15-207
- Bahmani-Oskooee, M., & Saha, S. (2015). On the relation between stock prices and exchange rates: A review article. Journal of Economic Studies, 42, 707–732.
- Bahmani-Oskooee, M., & Saha, S. (2016). Do exchange rate changes have symmetric or asymmetric effects on stock prices? Global Finance Journal, 31, 57-72.
- Bakhshani, S. (2016). Investigating the effect of exchange rate changes on stock prices and P / E ratios using SEM-PLS. Journal of Financial and Economic Policies, 12, 149-164, (In Persian).
- Black, B., (2001). The legal and institutional preconditions for strong securities markets. UCLA Law Review, 48, 81-858.
- Boonyanam, N. (2014). Relationship of stock price and monetary variables of Asian small open emerging economy: Evidence from Thailand. International Journal of Financial Research, 5, 52-63.
- Boubakri, N., & Olfa, H. (2007). The dynamics of privatization, the legal environment and stock market development. International Review of Financial Analysis, 16, 304-331.
- Dimitrova, D. (2005). The Relationship between Exchange Rates and Stock Prices: Studied in a Multivariate Model. Issues in Political Economy, 14, 1-25.
- Doong, S.-Ch., Yang, Sh.-Y., & Wang, A. (2005). The dynamic relationship and pricing of stocks and exchange rates: Empirical evidence from Asian emerging markets. Journal of American Academy of Business, 7, 23-118.
- Graham, J. R., & Harvey, C. (2001). The theory and practice of corporate finance: evidence from the field. Journal of Financial Economics, 60, 187-243.
- Heydari, H. & Bashiri, S. (2012). Investigating the Relation between Uncertainty of Real Exchange Rate and Stock Price Index in Tehran Stock Exchange: Observations Based on VAR-GARCH Model. Economic Modeling Research, 9, 71-92 (In Persian).
- Hyde, J. (2007). The response of industry stock returns to market, exchange rate and interest rate risk. Managerial Finance, 33, 693-709.
- Iorio, D., A, Faff, R., & Sander, H. (2013). An investigation of the interest rate risk and exchange rate risk of the europen financial sector: euro zone versus non-euro zone countries. Accounting and management information system, 12, 319-344.
- Kennedy, K. & Nourizad, F. (2016). Exchange rate volatility and its effect on stock market volatility. International Journal of Human Capital and Urban Management, vol 1 (1): 37-46.
- Kurihara, Y. (2006). The relationship between exchange rate and stock prices durin the quantitative easing policy in Japan. International Journal of Business, 11, 86-375.
- Mahmudul, A., & Gazi, S., U. (2009). The relationship between interest rate and stock price: Empirical evidence from developed and developing countries. International journal of business and management, 4, 43-51.
- Miller, K., D., & Reuer, J., J. (1998). Asymmetric corporate exposures to foreign exchange rate changes. Strategic Management Journal, 19, 1183-1191.
- Mohammadi, D. Danesh Jafari, D. & Nasr Esfahan, M. (2017). Modeling speculative bubbles of the stock market in Tehran considering the psychological and social dynamics. Journal of Economics and Modeling, 30, 95-122 (In Persian).
- Moore, T., & Wang, P. (2014). Dynamic linkage between real exchange rate and stock prices: Evidence from developed and emerging Asian markets. International Review of Economics and Finance, 29, 1-11.
- Morley, B. & Pentecost, E. J. (2000). Common Trends and Cycles in G7 Countries Exchange Rates and Stock Prices. Applied Economic Letters, 7, 7-10.
- Musaee, M., Mehregan, N., & Amiri, H. (2010). The relationship between stock market and macroeconomic variables in Iran. Journal of Economic Research and Policy, 54, 73-94(In Persian).
- Osoolian, M. (2005). Investigating the effect of some macroeconomic variables on the index of prices of industries of listed companies in the stock market from 1993 to 2002. Master's Thesis. University of Tehran (In Persian).
- Parivar, U., & Hassani, M. (2017). Dynamic assessment of the relationship between the foreign exchange market, the stock market and the housing market in Iran, using a multivariate GARCH model. Economics and Business Journal, 14, 29-17, (In Persian).
- Pearce, J, A., & Richard, R. (2002). Startegic management: formulation, implementaion, and control”, Available at: www.mhhe.com/pearce10e.
- Pedram, M., Mousavi, M. H., & Aghda, S. A. (2017). Asymmetric effects of interest rates on the stock price index of Iran. Journal of Management Studies and Accounting, 4, 162-171(In Persian).
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326.
- Pourebadolahan, M., Asgharpour, H. & Zolghadr, H.(2015). Examining Relationship between Stock Prices and Exchange Rate in Oil-exporting Countries. Journal of Economic Progress, 4, 61-86 (In Persian).
- Robert, D., & Gay, J. (2008). Nova Southeastern University, Effect of Macroeconomic Variables on Stock Market Returns For Four Emerging Economies: Brazil, Russia, India, And China. International Business & Economics Research Journal, 7, 1-20.
- Sajjadi, S. H., Farazmand, H., & Alisoufi, H. (2009). Investigating the relationship between macroeconomic variables and stock returns index in Tehran Stock Exchange. Journal of Research in Economic Sciences, 2, 123-150 (In Persian).
- Shin, D, W., & Lee, O. (2001). Tests for Asymmetry in Possibly Nonstationary Time Series Data. Journal of Business & Economic Statistics, 19(2), 233-244.
- Shin, Y., Yu, B., C., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. Sickels, & W. Horrace (Eds.), Festschrift in honor of Peter Schmidt. Econometric methods and applications. 281–314.
- Torabi, T., & Houman, T. (2010). Effects of macroeconomic variables on Tehran Stock Exchange (TSE) indices. Economic Modeling, 11, 121-144 (In Persian).

Files

Share

How to cite

Statistics