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

Ali Rezazadeh ()
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Ali Rezazadeh: Assistant Professor of Economics, Urmia University

Quarterly Journal of Applied Theories of Economics, 2016, vol. 3, issue 2, 121-136

Abstract: 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.

Keywords: Stock market volatility; Tehran stock market; Macroeconomic variables; GARCH-X model. (search for similar items in EconPapers)
JEL-codes: C22 E44 G10 (search for similar items in EconPapers)
Date: 2016
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