The Effect of Macroeconomic Variables on the Stock Market Index of the Tehran Stock Exchange

Mehrara, Mohsen; Gudarzi Farahani, Yazdan; Faninam, Farzan; Karsalari, Abbas Rezazadeh

doi:10.18052/www.scipress.com/ILSHS.71.17

ILSHS > Volume 71 > The Effect of Macroeconomic Variables on the Stock...

< Back to Volume

The Effect of Macroeconomic Variables on the Stock Market Index of the Tehran Stock Exchange

Full Text PDF

Abstract:

This paper examines the relationship between stock market index and macroeconomic policies (Fiscal and Monetary) on Iran's economy using quarterly data in the period 1999-2013. This study employed cointegration test and vector autoregressive models (VAR) to examine relationships between the stock market index and the macroeconomic variables. The empirical results reveal that a positive money shock can increase stocks return. According to impulse responses, the government expenditure had a slight impact on stocks return in the short term. But the government expenditure has a positive effect on exchange index in long run. Also the effect of taxes on the stock's price index is negative, so that it reaches its maximum level after the third lag and then alleviates. The GDP shock has positive effect on the stock's price index. Increase in production level leads to increase in earnings and profitability, leading to a positive response from stocks index. Therefore the results showed that the macroeconomic variables such as inflation, exchange rate and GDP have significant effects on Tehran exchange price index. So the hypothesis that the improving economic factors can have a useful role in the booming capital market is confirmed. Also the effect of fiscal policy factors such as tax revenues and government expenditures is more than monetary policy factors on stock returns.

Info:

Periodical:

International Letters of Social and Humanistic Sciences (Volume 71)

Pages:

17-24

DOI:

https://doi.org/10.18052/www.scipress.com/ILSHS.71.17

Citation:

M. Mehrara et al., "The Effect of Macroeconomic Variables on the Stock Market Index of the Tehran Stock Exchange", International Letters of Social and Humanistic Sciences, Vol. 71, pp. 17-24, 2016

Online since:

July 2016

Authors:

Mohsen Mehrara, Yazdan Gudarzi Farahani, Farzan Faninam, Abbas Rezazadeh Karsalari

Keywords:

Fiscal Policy, Macroeconomic Variables, Monetary Policy, Stock Price Index, Vector Autoregressive Model

Export:

RIS, BibTeX, Text

Distribution:

Open Access

This work is licensed under a
Creative Commons Attribution 4.0 International License

References:

[1] A. Tagkalakis, Fiscal policy and financial market movements, Journal of Banking and Finance. 35(1) (2011) 231-251.

DOI: https://doi.org/10.1016/j.jbankfin.2010.08.006

[2] M. Mehrara, The Relationship between Stock Market and Macroeconomic Variables: a case Study for Iran, Iranian Economic Review. 10(17) (2006) 137-148.

[3] I. Chatziantoniou, D. Duffy, G. Filis, Stock market response to monetary and fiscal policy shocks: Multi-country evidence, Economic Modelling. 30(0) (2013) 754-769.

DOI: https://doi.org/10.1016/j.econmod.2012.10.005

[4] A. J. Schwartz, Why Financial Stability Depends on Price Stability, Economic Affairs. 15(4) (1995) 21-25.

[5] M. Goodfriend, Interest Rates Policy Should Not React Directly to Asset Prices, in William C. Hunter, George G. Kaufman, and Michael Pomerleano, eds., Asset Price Bubbles: The Implications for Monetary, Regulatory, and International Policies. Cambridge, MA: The MIT Press, 2003, pp.445-57.

DOI: https://doi.org/10.2469/faj.v60.n2.2613

[6] M. Woodford, Interest and prices: Foundations of a theory of monetary policy, Princeton: Princeton University Press, (2003).

[7] B. Claudio, P. Lowe, Assessing the risk of banking crises, BIS Quarterly Review. (December 2002) 43-54.

[8] C. Nelson; C. Plosser, Trends and random walks in macroeconomic time series: some evidence and implications, Journal of Monetary Economics. 10 (1982) 139-169.

[9] C. Granger, P. Newbold, Spurious regressions in econometrics, J. Econometrics. 2 (1974) 111‐120.

DOI: https://doi.org/10.1016/0304-4076(74)90034-7

[10] D.A. Dickey, W.A. Fuller, Likelihood ratio statistics for autoregressive time series with a unit root, Econometrica. 49 (1981) 1057–1071.

DOI: https://doi.org/10.2307/1912517

[11] P. Phillips, P. Perron, Testing for a unit root in time series regression, Biometrica. 75 (1988) 335–346.

DOI: https://doi.org/10.1093/biomet/75.2.335

[12] W. Enders, Applied econometric time series (2nd Ed. ), Wiley, New York, (2004).

[13] W. Newey, K. West, Automatic lag selection in covariance matrix estimation, Review of Economic Studies. 61 (1994) 631-653.

DOI: https://doi.org/10.2307/2297912

[14] S. Johansen, Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models, Econometrica. 59 (1991) 1551–1580.

DOI: https://doi.org/10.2307/2938278

[15] S. Johansen, K. Juselius, Maximum likelihood estimation and inference on co-integration with application to the demand for money, Oxford Bulletin of Economics and Statistics. 52 (1990) 169–221.

DOI: https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x

[16] C.W.J. Granger, Some recent developments in a concept of causality, Journal of Econometrics. 39 (1988) 199–211.

[17] R.F. Engle, C.W.J. Granger, Cointegration and error correction: representation, estimation and testing, Econometrica. 55 (1981) 251–276.

[18] Y.W. Cheung, K.S. Lai, Finite-sample sizes of Johansen's likelihood ratio tests for cointegration, Oxford Bulletin of Economics and Statistics. 55 (1993) 313–328.

DOI: https://doi.org/10.1111/j.1468-0084.1993.mp55003003.x

Show More Hide

Cited By:

This article has no citations.