Examining the frequency-time dynamic relationship using the TVP-VAR-BK model for insurance, bank, and investment companies

Purpose: The flow of investment in various industries is affected by macro-economic and political conditions. By analyzing these factors and the internal factors of the stock market, investors buy and sell stocks. In such conditions, fluctuations are transferred to other markets. Following the increased volatility in an industry, it becomes difficult for investors to understand and analyze that industry. It increases the expectation of speculation, and, in such a situation, trust in a particular industry is lost. In the best case, capital outflow from the stock market does not occur. The continuous growing trend of extreme fluctuations in financial assets attracts the attention of many financial investors, policy makers and academic researchers. The transfer of returns and volatility between financial markets has been significantly strengthened and complicated due to globalization, technological development and financialization of commodity markets. It is widely accepted that the integration and financialization of the global market not only leads to increased liquidity and ease of trading in financial markets but also strengthens speculation and thus increases market volatility, which may act as a channel for temporal changes. There have been overflows of asymmetric fluctuations in financial markets as well as other markets over time. The small and large fluctuations there create different performance in the markets. The financialization of global commodities significantly contributes to stronger net contagion effects among financial markets and highlights the central role of financial markets in the transmission of volatility. Based on this, the occurrence of fluctuations in a financial industry can be transferred to other financial industries. Of course, the causality and intensity of transfer and receipt of fluctuations can be different over time and in different decimals of financial market returns, which is very important in the risk management of the investment portfolio. A review of the literature and the studies conducted in Iran's economy and financial markets show that, with the economic shocks brought to the country especially the recent sanctions, the capital market can play an important role to attract astray liquidity and finance the government. This can be done through the sale of shares of state-owned companies as well as the issuance of debt securities, which can show the importance of investigating the time-frequency relationship between the fluctuations of different stock market industries. Based on this, the current research deals with transmission, receipt, and the causal relationship between the fluctuations of the banking, insurance and investment industries during different years and in short-term, medium-term and long-term periods. This can be very important for investors as well as policy makers.
Methodology: The purpose of this study is to investigate the frequency-time dynamic relationship using the vector autoregression model with time-varying coefficients for insurance, bank, and investment companies in Iran's economy. In order to analyze the results, the TVP-VAR-BK pattern method was used in the period of 2011-2023 based on the frequency of the daily data. The variables used in this study included the index of banking, insurance and investment companies present in the stock exchange.
Findings and discussion: Based on the results, the banking and insurance industries were the receivers of returns, and the investment companies industry were the transmitters of returns in the short-term period. This shows that investment companies have been the main operators of the country's stock market financial network in the short term and have followed the movement and changes in the efficiency of the banking and insurance industries. Also, the average amount of communication between these industries was 17.53%. Investment companies were net contributors, and banks were net contributors. In the long-term period, insurance companies have received returns from other industries exactly equal to the returns that they have transferred. Accordingly, they have had a neutral role in the investigated network in this period of time. An important point is that investment companies have been net contributors, and the banking industry has been a net contributor in all the three time periods. This shows that any shock to investment companies' efficiency can cause a change in the efficiency of the banking and insurance industries. In general, the banking and insurance industries have been more passive in this network. This issue has been the case more in the short than the long term. Also, as the time period has passed on, the degree of connection between these three important industries of the capital market has decreased.
Conclusions and policy implications: The results of the research network analysis showed that, in general, the yield spillover from investment companies was transferred with a high intensity to the insurance companies and with a lower intensity to the banking industry. Also, the yield spillover was weakly transferred from the industry. The insurance has been transferred to the bank. In the short-term period, the yield overflow has been strongly transferred from investment to the bank and less intensively from investment to the insurance industry. In the medium-term period, there has been an overflow of returns from investments to insurance and weakly from banks to investments. Also, during this period, there has been a transfer of profits from the insurance industry to the bank. In the long-term period, the return has been strongly transferred from investment to insurance and more strongly from insurance to bank. According to the results of the research, the following suggestions can be considered by investors and policy makers. In the short-term period, if the investment companies that determine the network grow, the efficiency may be transferred to the banking and insurance industries, which is important to be considered by investors