Investigating the Direct and Inverse Non-Linear Relationship between Exchange Rate and Stock Market Return in Iran

Document Type : Research Paper

Authors

Department of Economics, Economic Affairs Research Institute, Tehran, Iran.

10.22103/jdc.2024.23602.1474

Abstract

Objective: Considering the importance of financial markets both at the micro level and at the macro level of the economy, in the present study, the relationship between the return of the foreign exchange market and the stock market in Iran has been tested.
 
Method: In this study, daily data from september 2013 to march 2024 and the quantile-to-quantile connection method were used.
 
Results: The results of the research showed that in the extreme quantiles, including 95%, currency returns and stock market returns have a strong connection with each other, and in the middle quantiles, this connection is greatly weakened. Also, based on the results, in different time periods, the relationship between the exchange rate and stock market returns changes; In the sense that in some periods of time, an increase in yield in one market will result in an increase in yield in another market, and in some other periods of time this behavior will happen in reverse. Regarding the net spillover effects between the two markets, the results showed that in the middle quantiles of both variables, the stock market has a net positive spillover effect on the currency market.
 
Conclusion: According to the results of the research, it can be argued that the central bank can help stabilize the stock market by applying appropriate currency policies and reducing exchange rate fluctuations. In fact, in Iran, by deepening the currency market, the fluctuations of the capital market can also be managed in a way.

Keywords

Main Subjects

References

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History

  • Receive Date: 09 June 2024
  • Revise Date: 09 September 2024
  • Accept Date: 16 October 2024

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