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The Relationship between Stock Market and Macroeconomic Variables: a Case Study for Iran

Author

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  • Mohsen Mehrara

    (Assistant Professor of Tehran University)

Abstract

This paper examines the causal relationship between stock prices and macroeconomic aggregates in Iran, by applying the techniques of the long–run Granger non–causality test recently proposed by Toda and Yamamoto (1995). We test the causal relationships between the TEPIX Index and the three macroeconomic variables: money supply, value of trade balance, and industrial production using quarterly data for the period 1372:1 to 1383:4. The results show unidirectional long run causality from macroeconomic variables to stock market. Accordingly, the stock prices are not a leading indicator for economic variables, which is inconsistent with the previous findings that the stock market rationally signals changes in real activities. Contrarily, the macro variables seem to lead stock prices. So, Tehran Stock Exchange (TSE) is not informationally efficient.

Suggested Citation

  • Mohsen Mehrara, 2006. "The Relationship between Stock Market and Macroeconomic Variables: a Case Study for Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 10(3), pages 137-148, fall.
    • Handle: RePEc:eut:journl:v:10:y:2006:i:3:p:137
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    Cited by:

    1. Shariq Ahmad Bhat, 2018. "Informational efficiency of sovereign bond markets of India and China: evidence from Toda and Yamamoto Granger causality (1995)," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 45(4), pages 313-323, December.
    2. Md. Abu HASAN, 2017. "Efficiency and Volatility of the Stock Market in Bangladesh: A Macroeconometric Analysis," Turkish Economic Review, KSP Journals, vol. 4(2), pages 239-249, June.

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