چکیده:
This paper empirically investigates the exchange rate effects of Iranian Rial against Dollar (Rial vs.US) on stock prices in Iran. The sample period for the study has been taken from March 20, 2004 to March 20,2010 using daily nominal exchange rate of Rial /us and daily closing values of Tehran Stock Exchange. Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model has been used in modeling the relationship between exchange rate volatility and stock market volatility, as it has been proven to give superiorresults.The paper presents an introduction to the topic, a review of the literature, data used and methodology applied the obtained findings and the corresponding conclusion. For our study, two hypotheses have been formulated and tested with appropriate econometric tests. It was found that both data series were stationary at level form and positive correlation exists between exchange rates and stock market prices and causality exists directionallybetween the two variables. Positive significant relationship between volatility in stock Prices and in exchange rates has been confirmed by the estimated GARCH model
خلاصه ماشینی:
It was found that both data series were stationary at level form and positive correlation exists between exchange rates and stock market prices and causality exists directionallybetween the two variables.
Keywords: Stock prices , Exchange rates, Volatility, Granger causality , GARCH INTRODUCTION In the recent years, offering a good environment for investment, and has made policy changes to facilitate cross-country investment.
Although, economic theory suggests that foreign exchange changes can have an important impact on the stock price by affecting cash flow, investment and profitability of firms, there is no consensus about these relationship and the empirical studies of the relationship are inconclusive (Joseph, 2002; Vygodina, 2006).
Ajayi and Mougoué in 1996 picked daily data from 1985 to 1991 for eight advance economic countries; employed error correction model and causality test and eventually discovered that increase in aggregate domestic stock price has a negative short-run effect and a positive long-run effect on domestic currency value.
Abdalla and Murinde (1997) used data from 1985 to 1994, giving results for India, Korea and Pakistan that suggested exchange rates Granger cause stock prices.
Also, Ibrahim and Aziz analyzed dynamic linkages between the variables for Malaysia, using monthly data over the period 1977-1998 and their results showed that exchange rate is negatively associated with the stock prices.
00474 Dependent Variable: STOCKPRICE Table 6: GARCH (1,1) model on stock prices Method: ML - ARCH (Marquardt) - Normal distribution Sample (adjusted): 3/21/2004 3/20/2010 Included observations: 2191 after adjustments Convergence achieved after 13 iterations Variance backcast: ON GARCH = C(1) + C(2)*RESID(-1)^2 + C(3)*GARCH(-1) Coefficient Std. Error z-Statistic Prob.