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Impact of the Selected Domestic and Foreign Markets Returns on Stock Price in Iran

Author

Listed:
  • Argha , Leila

    (Department of Economics, Bu-Ali Sina University)

  • Mowlaei , Mohammad

    (Department of Economics, Bu-Ali Sina University)

  • Khezri , Mohsen

    (Department of Economics, Bu-Ali Sina University)

  • Shahabadi , Abolfazl

    (Faculty of Social Sciences and Economics, Alzahra University)

Abstract

One of the features of a financial market, the stock market, in particular, is the market sentiment which is the overall attitude of investors toward a particular security or financial market. Investors always seek to create a portfolio with minimum risk while maintaining the expected return level. Therefore, perceiving the relationship between the stock returns and markets returns can be helpful for investors to create an optimal portfolio. On this basis, the present study aims at investigating the Dynamic Conditional Correlation (DCC) between the returns on the domestic markets (industry stock market and exchange rate) and foreign markets using monthly data of oil and base metals including total metals, copper, steel and returns on the stock price index in Iran during March 2001 to April 2017 using the Dynamic Conditional Correlation Fractionally Integrated Asymmetric Power ARCH (DCC-FIAPARCH) approach. The obtained results indicate a statistically significant and positive DCC coefficient between metals, industrial products, and copper returns with the stocks returns. Consequently, it is not possible to put each of these assets with the stocks in an identical situation (purchase or sale), but instead they should be always situations for risk control. However, in connection with other markets, DCC is not significant; accordingly, assets can be placed in the investment portfolio together with the stocks.

Suggested Citation

  • Argha , Leila & Mowlaei , Mohammad & Khezri , Mohsen & Shahabadi , Abolfazl, 2017. "Impact of the Selected Domestic and Foreign Markets Returns on Stock Price in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(4), pages 481-489, October.
    • Handle: RePEc:mbr:jmonec:v:12:y:2017:i:4:p:481-489
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    More about this item

    Keywords

    Stocks; Oil Price; Exchange Rate; Copper; Steel; Dynamic Conditional Correlation; DCC-FIAPARCH;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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