The Mechanism of Volatility Spillover and Noise Trading Among Financial Markets and The Oil Market: Evidence from Iran
الموضوعات :
Sharareh Taheri
1
(Department of Management, Najafabad Branch, Islamic Azad University, Najafabad, Iran)
Abdolmajid Abdolbaghi Ataabadi
2
(Department of management,Faculty of Industrial Engineering and Management , Shahrood university of technology, shahrood . iran)
Mohammad Hossein Arman
3
(Department of Management, Najafabad Branch, Islamic Azad University, Najafabad, Iran)
Majid Vaziri Sarashk
4
(Department of industrial engineering, Najafabad Branch, Islamic Azad University, Najafabad, Iran.)
الکلمات المفتاحية: noise trading, Financial Markets, Volatility Spillover, volatility, GARCH Model,
ملخص المقالة :
Financial markets are currently experiencing sharp volatility. Studying how the returns and volatility in one market affect other markets has always been one issue that helps investors and policymakers to make optimal decisions. Given the importance of volatility spillovers in the Iranian financial market, this study aimed to investigate the mechanisms behind the volatility spillovers in the foreign exchange, gold, and stock markets to the oil market in Iran. This descriptive study was conducted using the daily and monthly data from the oil, foreign exchange, gold, and capital markets from 2010 to 2019 and to analyze the data, ARCH and GARCH models have been used. The results of this study showed that the abnormal volatility of the foreign exchange and gold in the previous day positively affects the abnormal volatility of the oil market today, this indicates that money flows in the currency market, spilling over the fluctuations into the oil market. hey also found that the abnormal volatility of the capital market in the previous day negative affects the abnormal volatility of the oil market today, indicating that if money flows in the capital market, which indicates the flow of money in the capital market from yesterday, increasing the transfer of emotions to the current capital market but does not spillover into the oil market and volatility is not transferred into the oil market. Overall, the findings of this study confirmed the positive impact of the foreign exchange and gold markets on the abnormal volatility in the oil market in the short term (daily) and long term (monthly), but did not confirm the positive impact of the capital market on the abnormal volatility in the oil market.
Abdolbaghi, A., Sbour, S., & Bagheri. R, M. (2020). E-GARCH and modeling of market volatility based on noise trading. Financial knowledge of Security Analysis, 12 (44), 23 -35, DOI: https://www.sid.ir/fa/journal/ViewPaper.aspx?id=492007.
Ahmadvand, Sh., & Mirzaei, N. (2022). Impact of information, communication technology, and housing industry on financial market development. Technology in Society, 69, DOI: https://doi.org/10.1016/j.techsoc.2022.101962.
Bagirov, M., & Mateus, C. (2019). Oil prices, stock markets and firm performance: Evidence from Europe. International Review of Economics and Finance, DOI: https://doi.org/10.1016/j.iref.2019.02.007.
Baklaci, H.F., Aydoğan, B., & Yelkenci, T. (2020). Impact of stock market trading on currency market volatility spillovers. Research in International Business and Finance, V. 52, DOI: https://doi.org/10.1016/j.ribaf.2020.101182.
Balcilar, M., Ozdemir, Z.A., & Ozdemir, H. (2019). Dynamic return and volatility spillovers among S&P 500, crude oil, and gold. International Journal of Finance and Economics, 26(1), 153–170, DOI: https://doi.org/10.1002/ijfe.1782.
Beirne, J., Guglielmo, GM., Schulze.Gh, M., & Spagnolo, N. (2008). Volatility spillovers and contagion from mature to emerging stock markets. International Monetary Fund. Working Paper Series, NO.1113, DOI: 10.2139/ssrn.1340401
Botshekan, M.H., & Mohseni, H. (2018). Investigation Volatility spillovers between oil market and stock index return. Journal of Investment knowledge, 7(25), 267 -284, DOI: https://www.sid.ir/fa/journal/ViewPaper.aspx?id.
Chang, C. L., & Fang, M. (2020). Noise Trading and Abnormal Return in Stock Market, Clinica Psicologica, 29(4), 317-324, DOI: 10.24205/03276716.2020.831.
Chen, Y., Qiaob, G., & Zhang, F. (2022). Oil price volatility forecasting: Threshold effect from stock market volatility. Technological Forecasting and Social Change, V.180, DOI: https://doi.org/10.1016/j.techfore.2022.121704.
Dehghani, M. (2015). Volatility spillover in oil, gold, and exchange rate (Us Dollars-Euro) markets, Ph.D. thesis in Economics, Payame Noor University.
Diebold, F.X., & Yilmaz, K. (2012). Better to give than to receive: predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28, 57–66, DOI: https://doi.org/10.1016/j.ijforecast.2011.02.006.
Engle, R. F., Ito, T., & Lin, W. L. (1990). Meteor showers or heat waves? Heteroskedastic intra-daily volatility in the foreign exchange market. National Bureau of Economic Research, 58(3), 525-542, DOI: https://doi.org/10.2307/2938189.
Fallah.sh, M., & Panahi, Y. (2014). Efficiency comparison among Garch models in modeling and liquidity measurement. Case Study: Tehran Stock Exchange. Journal of Investment knowledge, 3(9), 21- 41, DOI: https://www.sid.ir/fa/journal/ViewPaper.aspx?id=212989.
Feng, J., Lin, D., & Yan, X. (2014). Research on Measure of Noise Trading in Stock Market Based on EGARCH-M Model, International Conference on Management Science & Engineering 21th Annual Conference Proceedings, DOI: https://doi.org/10.2991/icieac-14.2014.23.
Filis, Q., Degiannakis, S., & Floros, Ch. (2011). Dynamic correlation between the stock market and oil prices: the case of oil-importing and oil-exporting countries. International Review of Financial Analysis, V.20, 152-164, DOI: https://doi.org/10.1016/j.irfa.2011.02.014.
Fotros, M. H., & Hoshidari, M. (2016). The effect of crude oil price volatility on volatility in Tehran stock market GARCH multivariate approach. Iranian Journal of Energy Economics, 5(18), 147-177, DOI: 10.22054/jiee.2016.7195
Hakimian. H., & Ahmadi, Z. (2019). The long-term relationship between Tehran stock market total return index, crude oil, dollar, and gold coin. Journal of Securities Exchange, 12(45), 68 – 94, DOI: 10.22034/jse.2019.11149.
Jamil, M., & Mobeen, H. (2021). Mechanism of volatility spillover between stock, currency, and commodity markets of Pakistan. Pakistan Development Review, V.60, 49–64, DOI: https://doi.org/10.30541/v60i1pp.49-64.
Jena, S., Tiwari, A., & Roubaud, D. (2018). Comovements of gold futures markets and the spot market: A wavelet analysis. Finance Research Letters, V.24, 19-24, DOI: https://doi.org/10.1016/j.frl.2017.05.006.
Jiang, Y., Tian, G., & Mo, B. (2020). Spillover and quantile linkage between oil price shocks and stock returns: New evidence from G7 countries. Financial Innovation, DOI: https://doi.org/10.1186/s40854-020-00208-y.
Keshavarz, S., Vaziri. S, M., Abdolbaghi, A., & Arman, M. H. (2022). Trading strategies based on trading systems: Evidence from the performance of Technical Indicators. Journal of System Management, 7(1), DOI: 10.30495/jsm.2022.1937933.1509.
Khodayari, M, A., Yaghobnejad, A., & Khalili. A, M., (2019). Comparison of the Forecasting of Financial Markets Volatility Using the Regression Model and Neural Network Model, Journal of Financial Economics and Development, 14(52), 223 - 240. DOI: https://www.sid.ir/en/journal/ViewPaper.aspx?id=793959.
Lee, S., & Min Kim, Y. (2022).Volatility spillovers across financial markets: the role of oil price uncertainty, Applied Economics Letters, DOI: https://doi.org/10.1080/13504851.2022.2097167.
Naderi, P. (2019). Study of the effect of volatility spillover of remittance and foreign direct investment on exchange rate fluctuations in selected developing countries, Ph.D. Thesis in Economics, Semnan University.
Oyuna, D., & Yaobin, L. (2021). Forecasting the crude oil price volatility with stochastic volatility models. Research Article, 1-8, DOI: 10.1177/21582440211026269
Pandey, V., & Vipul, V. (2018). Volatility spillover from crude oil and gold to BRICS equity markets. Journal of Economic Studies, 45(2), 426-440, DOI: 10.1108/JES-01-2017-0025.
Peress, J., & Schmidt, D. (2021), Noise Traders Incarnate: Describing a Realistic Noise Trading Process, Journal of Financial Markets, vol.54, DOI: 10.1016/j.finmar.2020.100618.
Salmani. D, S., Saeedi, P., Bahramzadeh, H. A., & Pourshahabi, F. (2019). Representing the Pattern of Relationship between Personality Traits and Investment Patterns in the Stock Market. Journal of System Management, 5(1), DOI: 79-114, 20.1001.1.23222301.2019.5.1.5.6.
Su, F. (2021). Conditional volatility persistence and volatility spillovers in the foreign exchange market. Research in International Business and Finance, V.55, DOI: https://doi.org/10.1016/j.ribaf.2020.101312
Taheri, A., Shafiee, M., & Evazzadeh. F, F. (2019). Investigating the role of non-financial information analysis and risk-return analysis along with financial information in increasing the efficiency of the stock portfolio of banks. Journal of System Management, 5(3), 123-138, DOI: https://www.sid.ir/en/journal/ViewPaper.aspx?id=738302.
Tehrani, R., & Khosrowshahi, S. A. (2017). Transmission of volatility and interaction of stock markets, currency, and gold. Financial Management Perspective Quarterly, 7(18), 9-31.
Trabelsi, N., Gozgor, G., Aviral, K. T., & Hammoudeh, S. (2021). Effects of the price of gold on Bombay stock exchange sectoral indices: New evidence for portfolio risk management, Research in International Business and Finance, V.55, DOI: https://doi.org/10.1016/j.ribaf.2020.101316.
Tsay, R.S. (2010). Analysis of Financial Time Series. John Wiley and Sons, Inc. Hoboken, New Jersey.720 pages. ISBN: 978-0-470-41435-4.
Wu, C.C., & Chiu, J. (2017). An economic evaluation of asymmetric and price range information in gold and general financial markets. Journal of International Money and Finance, V.74, 53–68, DOI: https://doi.org/10.1016/j.jimonfin.2017.03.001.
Xiao, J., & Wang, Y. (2022). Good oil volatility, bad oil volatility, and stock return predictability. International Review of Economics & Finance, V.80, 953-966, DOI: https://doi.org/10.1016/j.iref.2022.03.013.
Yazdani, S., Hadizadeh, M., & Fakoor, V. (2022). Computational analysis of the behavior of stochastic volatility models with financial applications. Journal of Computational and Applied Mathematics, V.411, DOI: https://doi.org/10.1016/j.cam.2022.114258.
Yin, K., Liu, Z., & Jin, X. (2020). Interindustry volatility spillover effects in China’s stock market, Physica A: Statistical Mechanics and its Applications, 539(12), DOI: https://doi.org/10.1016/j.physa.2019.122936.
Zeinoldini, S., Karimi, M. Sh., & Khanzadi, A. (2020). Investigation of the effect of the oil price shocks on the stock market performance in Iran. Journal of financial economics, 14(50), 145-169, DOI: https://www.sid.ir/en/journal/ViewPaper.aspx?id=754474.
Zenga, Sh., Jiaa, J., Sub, B., Jiangc, C., & Zeng, G. (2021). The volatility spillover effect of the European Union (EU) carbon financial market. Journal of Cleaner Production, V.282, DOI: https://doi.org/10.1016/j.jclepro.2020.124394.
Zhu, Y., Fan, J., Tucker, J. (2017). The impact of monetary policy on gold price dynamics. Research in International Business and Finance, V.44, 319-331, DOI: https://doi.org/10.1016/j.ribaf.2017.07.100.
