Designing a Financial Volatility Index (FVI): approach to machine learning models in uncertainty

Reza Ghaffari Gol Afshani, Mir Feiz FallahShams, Mojgan Safa and Hossein Jahangirnia

Macroeconomics and Finance in Emerging Market Economies, 2025, vol. 18, issue 3, 742-771

Abstract: The purpose of this study is to design a financial stress index to predict the occurrence of financial crisis in the Tehran Stock Exchange. In this paper, a composite index has been designed to measure the Iranian financial system and the effects of financial volatility in conditions of uncertainty in the financial markets and the Tehran Stock Exchange between 2008 and 2020. Volatility Index of currency, stock exchange and banking industry are the three main components in the design of this model. Since in the previous research, the shock of variables was used. In this research, while using the volatility of these variables, a comprehensive index regarding the volatility of currency, stock exchange and banking industry has been considered. This research is conducted in five steps based on the GHARCH-DCC approach and finally, based on the variables of financial institutions, a predictive model for the financial stress index is presented. From the results, we find that all the independent variables of the research have a significant effect on the financial stress index, except for the volatility of the coin market, which has a negative effect; the other independent variables have a positive effect on the financial stress index.

Date: 2025
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DOI: 10.1080/17520843.2022.2154480

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