Estimation of the volatility transmissions between the exchange rate and the stock market returns in terms of individual industries in Iran

Document Type : Research Paper

Authors

1 Professor of Econometrics & Social Statistics, Department of Economics, Semnan University

2 Associate Professor, Department of Economics, Sharif University of Technology

3 PHD Student of Econometrics, Department of Economics, Semnan University

Abstract

In this paper, the volatility transmissions between the exchange rate and the stock market returns are estimated for different industries in Iran from 03/25/2009 to 05/22/2019. For this purpose, DECO-GARCH model is used with and without structural breaks. The results show that the model estimation with structural breaks in a conditional variance reduces the degree of persistence of volatility. The model with structural break yields more accurate results than the model ignoring the structural breaks. Finally, using the overflow index, the relationship and convergence among markets as well as the direction and intensity of overflow among them are identified and evaluated. The results show that the overflow index of total returns is about 7.36%, the convergence of markets is relatively low. Also, the chemical and automotive industry markets prove to be the dominant ones.

Keywords

Main Subjects

References

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The Journal of Economic Policy
Volume 12, Issue 23
October 2020
Pages 253-278

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