The Effect of Exchange Rate and its Volatility on Stock Price Index in Iran

Subject Areas : Applied Economics

Azadeh Mehrabian ¹ (ندارد)
Ilnaz Chegeni ² (ندارد)

Received: 2015-08-01 Accepted : 2015-08-01 Published : 2014-07-23

Keywords: exchange rate, Volatility of exchange rate, Tehran Price Index (TEPIX), Vector Auto Regressive Model (, GARCH &#x0D, &#x0D, JEL Classification: G, E44, F31,

Abstract :

One of the effective factors on stock price index is exchange rate that often its quantities is fluctuating in different domains. In different countries with considering the differences in investment infrastructure and economic situation, the effect of exchange rates and its volatility on stock price index can be different. This article uses monthly mean of Tehran price index (TEPIX) and real exchange rate between 1380/M1-1391/M3 with purpose of studying the effect of exchange rate and its volatility on TEPIX. By Using Eviews6 software, at first, volatility of exchange rate is calculated by GARCH method and then the effect of exchange rate and its volatility on TEPIX is estimated by VAR model. The results indicate that in all periods the effect of exchange rate is more than its volatility. Based on the results of Johansen test, exchange rate and its volatility has a significant long-run equilibrium relationship with TEPIX. Exchange rate has negative effect on TEPIX and its volatility has a positive one.