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

Ahmad Gholami () and Ehsan Salimi Soderjani ()
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Ehsan Salimi Soderjani: Maybod University

Journal of Money and Economy, 2020, vol. 15, issue 3, 343-356

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.

Keywords: Volatility Spillover; Iran Stock Market; Global Economy; Dynamic Conditional Correlation (search for similar items in EconPapers)
JEL-codes: C58 G15 (search for similar items in EconPapers)
Date: 2020
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