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Explaining the Nonlinear Response of Tehran Stock Exchange Price Index to Oil Price Shocks Using Markov Switching Regime | ||
| راهبرد مدیریت مالی | ||
| Article 1, Volume 11, Issue 4 - Serial Number 43, December 2023, Pages 1-24 PDF (567.4 K) | ||
| Document Type: Research Paper | ||
| DOI: 10.22051/jfm.2023.42752.2782 | ||
| Authors | ||
| Alireza Saranj* 1; Milad Rafiee2 | ||
| 1Assistant Prof., Department of Finance and Accounting, Faculty of Management and Accounting, Farabi College, University of Tehran, Qom, Iran | ||
| 2Ph.D. Candidate in Finance, Department of Finance, Management Faculty, University of Tehran, Tehran, Iran | ||
| Abstract | ||
| Oil price is often regarded as an important factor in analyzing variation in stock prices, but empirical evidence is mixed. This research is set to reconcile this conflict on the effect of oil prices on Tehran Exchange stock price. The nonlinear response of Tehran Exchange price index to oil shocks has been explained by a Markov Switching regime model. This research also uses a Structural Vector Autoregressive model to separate oil price shocks into three types in a time period from from 10/10/2010 to 10/10/2021 to test the hypotheses. The resualts show that oil price shocks have asymmetric effect on Tehran Stock prices. This asymmetry can be explained by sign of oil price shift and finally, response of stock prices to oil supply shock, global demand shock and oil-specific demand shock is asymmetric. During an increase in oil prices, it will be more likely to have large positive effects on stock prices than a decrease in price. Duration of the price index response in low regime is significantly longer than high regime. In both regimes, response of the stock price to the increase in oil prices is positive, but in the high regime, the magnitude and duration of response are greater. | ||
| Keywords | ||
| Oil Price Shocks; Asymmetric Effect; Stock Price Index; Markov Switching; Structural VAR | ||
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| References | ||
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