The Analysis of Real Exchange Rate Volatility and Stock Exchange Return with PANEL-GARCH Approach (Case Study: D8 Countries)

Behnam Najafzadeh (), Mohammadreza Monjazeb () and Siab Mamipour ()
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Behnam Najafzadeh: Department of Economics, Kharazmi University, Tehran, Iran.
Mohammadreza Monjazeb: Department of Economics, Kharazmi University, Tehran, Iran.
Siab Mamipour: Department of Economics, Kharazmi University, Tehran, Iran.

Iranian Economic Review (IER), 2016, vol. 20, issue 4, 525-550

Abstract: Stock returns of companies listed on the stock exchange is one of the most important criteria in assessing the macroeconomic. This study investigates the effect of exchange rate Volatility on the stock exchange Returns of D8 countries. It takes monthly data during the period (2008:1-2015:6) constituting 90 observations. At first we used PanelGARCH model to estimate Exchange Rate Volatility Index, and then we used Panel data method to investigate the effect of index on the stock exchange return of D8 countries. Simulation results show that exchange rate volatility affects positively and significantly on stock exchange return in four countries, namely Iran, Pakistan, Indonesia and Bangladesh. The variables of oil price, real interest rate, inflation rate, real exchange rate and gold price have been utilized for model analysis. Results show that the variables of real exchange rate and inflation rate have negative effects but oil price has positive effect on stock returns, while interest rate and gold price do not have any significant effect.

Keywords: Stock Returns; Exchange Rate Volatility; D8 Countries; PANEL- GARCH Model. (search for similar items in EconPapers)
Date: 2016
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