The Effect of Exchange Rate Fluctuations on the Car Stock Index under Sanction Using Markove Switching Approach

Subject Areas : Financial engineering

Saman Houshmandi ¹ , Seyed Shamsuddin Hosseyni ² , Abbas Memarnejad ³ , Farhad Ghaffari ⁴

1 - Department of Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.
2 - Department of Economics, Economic Faculty, Allameh Tabatabaei University, Tehran, Iran.
3 - Department of Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.
4 - Department of Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.

Received: 2021-05-23 Accepted : 2021-06-09 Published : 2021-12-22

Keywords: "Markov Switching Model", "Causal Relationship", "Exchange Rate", "Car Stock Index",

Abstract :

The present study tries to investigate the impact of the exchange rate fluctuations on the car stock index in Tehran Stock Exchange using the monthly data of the period of 1387:10-1398:12 and using the nonlinear Markov switching approach. For this purpose, among the various modes of Markov switching model, MSIAH(3) -VAR(2) has been selected. The empirical findings of the study show that only in a regime with high fluctuations, the exchange rate is the causal relationship of the car stock index and the increase in the exchange rate has increased the car stock index while the car stock index has no impact on the exchange rate. In addition, the results indicate that the sustainability of the car stock index in the regime with the very low fluctuations (first regime) was more than that of the regime with the low fluctuations (second regime) and that of the regime with the high fluctuations (third regime).