Exchange Rate Volatility Spillovers to Iran Capital Market

Mahdi Sadeghi Shahdani and Hossein Mohseni ()
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Mahdi Sadeghi Shahdani: Associate Professor of Economics, Imam Sadiq University
Hossein Mohseni: PhD. in Economics, Allameh Tabataba’I University

Quarterly Journal of Applied Theories of Economics, 2019, vol. 6, issue 1, 77-96

Abstract: The exchange rate volatility as an important factor will affect the behaviour of supply and demand of financial markets participants. The importance of the spillover explanation between the two markets comes from managed floating exchange rate system in Iran and the large portion of the foreign currency-dependent industries in the capital market. This paper examines the dynamic conditional correlation and volatility spillover of the exchange rate on the capital market using three multivariate GARCH models in a 12-year period ending in 2016. The purpose of this study is to explain the effect of shocks and the spillover of the currency market on the Iranian capital market. This could play an important role in investors' decisions, fundamental analysts and also sovereign institutions. The results confirm the existence of negative short-term and positive long-term sustainability of exchange rate shocks on capital market returns. Also, the asymmetric and positive volatility spillover to the Iranian capital market was confirmed

Keywords: Volatility spillover; Dynamic conditional correlation; Exchange rate; Capital market (search for similar items in EconPapers)
JEL-codes: C13 C58 G10 G19 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:0139

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