Stock Price Synchronicity Based on Uncertainty in Monetary Policies

Subject Areas : Financial Knowledge of Securities Analysis

saeed  salehi ¹ (Ph.D. student of Financial Engineering, Rodhan Branch, Islamic Azad University, Iran)
narges  yazdanian ² (Assistant Professor, Department of Accounting, Roudhan Branch, Islamic Azad University, Iran. (Corresponding Author))
hoda  hemmati ³ (Assistant Professor, Department of Accounting, Roudhan Branch, Islamic Azad University, Iran)
seyedalireza  mirarab baygi ⁴ (Assistant Professor, Department of Financial Management, Roudhan Branch, Islamic Azad University, Iran)

Received: 2022-01-23 Accepted : 2022-08-27 Published : 2022-11-22

Keywords: Uncertainty, monetary policies, Price Synchronicity,

Abstract :

The purpose of this research was to investigate the role of uncertainty in monetary policies on the synchronicity of company’s stock prices. The statistical population of the research consists of all the companies listed in Tehran Stock Exchange between 2010 and 2019, of which 118 companies have been studied as a statistical sample of the research. The research data were analyzed using regression models using the pooled data method. In order to measure the uncertainty in monetary policies, two methods based on the entropy of exchange rate values and also fitting the GARCH heterogeneous variance model were used. The findings of the regression models showed that the increase in uncertainty in the monetary policies of each period under both the entropy criteria and the GARCH model has an adverse effect on the synchronicity of the stock prices in the future period. Therefore, the degree of stock prices synchronicity in each period can be predicted by relying on the uncertainty of monetary policies of the past period and the company's financial ratios. Also, the results showed that managers' strategies in order to reduce the debt ratio, increase cash retention and under investment to deal with the uncertainty caused by monetary policies, have a moderating effect on the relationship between this uncertainty and price synchronicity and strengthen the size of its effect on the synchronicity of the stock prices in the future period.

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