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Volatility Spillover of the Exchange Rate and the Global Economy on Iran Stock Market

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  • Gholami, Ahmad
  • Salimi Soderjani, Ehsan

    (Maybod University)

Abstract

Financial markets are one of the most fundamental markets in any country. In the financial markets, the securities market and the foreign exchange market are sensitive sectors. These two markets are affected by fluctuations and economic cycles so reflect economic changes rapidly. Changes in the returns of one market due to arbitrage conditions during time lead to changes in the returns of other markets. This paper by dividing the spillover effect into two parts, mean effect and volatility effect, employing DCC-GARCH method, aimed to capture the spillover effects of dollar return, global market and Iran financial market in the period 1394-1398. Mean conditional results show that stock returns react negatively to dollar returns. In other words, there is a substitution between dollar returns and stock returns among economic agents. For the global economy, the stock market returns decreases with the fluctuations of the global economy index, but for the dollar, the relationship is reversed so that increase in the global economy index volatility increases the dollar return. For the volatility spillover, the results also supported strong spillover between each market pairs.

Suggested Citation

  • Gholami, Ahmad & Salimi Soderjani, Ehsan, 2020. "Volatility Spillover of the Exchange Rate and the Global Economy on Iran Stock Market," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 15(3), pages 343-356, July.
    • Handle: RePEc:mbr:jmonec:v:15:y:2020:i:3:p:343-356
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    References listed on IDEAS

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    More about this item

    Keywords

    Volatility Spillover; Iran Stock Market; Global Economy; Dynamic Conditional Correlation;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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