The Effect of Exchange Rate and Financial Sanctions on the Return of the Tehran Stock Exchange Index

Nafiseh Keshtgar, Ehsan Zanganeh and Seyed Hossein Mirjalili

EconStor Open Access Articles and Book Chapters, 2026, vol. 21, issue 1, 77-108

Abstract: This study examines the dynamic effects of exchange rate fluctuations and financial sanctions on the returns of the Tehran Stock Exchange (TSE) Index over the period March 2011 to March 2023. Employing a Time-Varying Parameter Vector Autoregression (TVP-VAR) model, the model captures the evolving and asymmetric interactions between exchange rate growth, sanction intensity-proxied by changes in Iran's oil revenues-and stock market performance. The findings reveal that exchange rate shocks generally stimulate short-term increases in TSE returns but may reverse under heightened uncertainty, while intensified sanctions exert predominantly negative impacts, particularly during the EU oil sanctions period (2012-2015) sanctions and the post-2018 U.S. withdrawal from the JCPOA. Impulse response analysis shows that neither exchange rate nor sanctions shocks converge to long-term equilibrium, indicating structural vulnerabilities and limited market depth within the Iranian financial system. These results contribute to the literature on financial markets in sanction-prone, oil-dependent economies and provide evidence-based insights for policymakers and investors aiming to enhance market stability and resilience.

Keywords: Exchange Rate; Financial Sanctions; Tehran Stock Exchange Index; TVP VAR Model; Iran’s Economy (search for similar items in EconPapers)
JEL-codes: F31 F51 G01 (search for similar items in EconPapers)
Date: 2026
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Journal Article: The Effect of Exchange Rate and Financial Sanctions on the Return of the Tehran Stock Exchange Index (2026)
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