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The Impact of Macroeconomic Variables on Tehran Stock Market Returns Volatility: GARCH-X Approach


  • Rezazadeh, Ali

    () (Assistant Professor of Economics, Urmia University)


For any country, the stock market reflects the country's economic structure, but also is an important source of capital circulation in that country. Therefore identification of effective factors on stock market volatility is important for economic policy makers. In this regard, the present study tried investigating the impact of macroeconomic variables, including money supply growth, inflation rate, industrial production growth and market exchange rate changes on the Tehran stock exchange volatility. To achieve this purpose, seasonal data during 2003-2015 period and GARCH-X and VAR model was used. The results of model estimation show that the money supply growth and exchange rate changes have a positive and significant impact on stock returns and inflation rate has positive but insignificant impact on stock returns. Also industrial production growth has negative and significant impact on stock returns. Therefore, it is recommended that the country's planners and policy makers to prevent the lack of uncertainty in the capital markets, should avoid unmanaged economic policies and programs.

Suggested Citation

  • Rezazadeh, Ali, 2016. "The Impact of Macroeconomic Variables on Tehran Stock Market Returns Volatility: GARCH-X Approach," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 3(2), pages 121-136, July.
  • Handle: RePEc:ris:qjatoe:0045

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    More about this item


    Stock market volatility; Tehran stock market; Macroeconomic variables; GARCH-X model.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)


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