Asymmetries in the Iran Stock Price – Exchange Rate Nexus: A Momentum Threshold Autoregressive (MTAR) Approach

Hamed Khezrzadegan ()
Additional contact information
Hamed Khezrzadegan: Auditor, Supreme Audit Court

Quarterly Journal of Applied Theories of Economics, 2024, vol. 11, issue 3, 227-252

Abstract: This paper focused on analyzing the dynamic response of stock prices to exchange rate changes in Iran from 1385M1 to 1402M4 through the Momentum threshold autoregressive framework. The results of the threshold model show an asymmetric threshold long-run (cointegration) relationship between stock and foreign exchange markets in Iran, indicating the possibility of predicting one market from another, which contradicts the efficient market hypothesis. This finding implies that stock and foreign exchange markets are asymmetrically interdependent, making it quite impossible for investors to effectively diversify their portfolios. Moreover, the stock prices respond to short-run changes in the exchange rate and asymmetrically to financial disequilibrium. Concerning the asymmetric adjustment, the response of stock prices to the negative phase of disequilibrium is faster (in absolute terms) than to the positive phase of disequilibrium. Going by the role of asymmetry, the Central Bank should follow an asymmetric intervention pattern (with respect to exchange rate depreciation and appreciation) to strengthen the domestic currency and reduce pressure on the stock market

Keywords: Threshold cointegration; Asymmetric adjustment; Exchange rate; Stock prices (search for similar items in EconPapers)
JEL-codes: C32 C51 F31 G12 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ecoj.tabrizu.ac.ir/article_18925_744d7c7daef0ca818e54ca8c5080f39f.pdf Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:0352

Access Statistics for this article

Quarterly Journal of Applied Theories of Economics is currently edited by Sakineh Sojoodi

More articles in Quarterly Journal of Applied Theories of Economics from Faculty of Economics, Management and Business, University of Tabriz Contact information at EDIRC.
Bibliographic data for series maintained by Sakineh Sojoodi ().