Modeling of long-term memory and regime changes in Tehran Stock Exchange stock returns and asymmetric effects of oil market shocks on it
Subject Areas : Financial Knowledge of Securities AnalysisMojtaba Almasi 1 , Ali Falahati 2 , Shahram Fattahi 3 , Alireza Rostami 4
1 - Associate Professor of Economics, Razi University of Kermanshah. Kermanshah, Iran.
2 - Associate Professor of Economics, Razi University of Kermanshah. Kermanshah, Iran.
3 - Associate Professor of Economics, Razi University of Kermanshah. Kermanshah, Iran.
4 - Ph.D. Student of Economics, Razi University of Kermanshah. Kermanshah, Iran.
Keywords: oil market shocks, regime change, long-term memory,
Abstract :
In this research, by presenting a completely new model at the national and international levels, a practical framework for accurately determining the shocks of foreign markets on stock returns has been provided; so that, using monthly data from 1998 to 2017 and the Markov Switching Fractionally Integrated Threshold GARCH (MS-FITGARCH) model attempts to investigate the oil price shocks on stock market returns and the comprehensive modeling of Heteroscedasticity characteristics, leverage effect, Volatility clustering, and long-term memory in the framework of various recession and expansion regimes of the stock market returns. In addition, the Dynamic Conditional Correlation-Fractionally Integrated Threshold GARCH (DCC-FITGARCH) model has been used to investigate the relationship between oil market and stock market fluctuations. The results of this study indicate the significance of the model's coefficients and the necessity of using the model introduced in the research to model the fluctuations of Tehran Stock Exchange. Based on the results, the regime one capture the recession conditions and the regime two capture the expansion conditions of Tehran Stock Exchange. The results of the MS-FITGARCH model indicate a significant positive effect of oil price shocks on the stock return average in the expansion regimes, so that the effects in the recession regime are not significant. Also, the results of the DCC-FITGARCH model are in line with the first model and represent a more positive conditional correlation between the fluctuations of the stock market and the oil market during the expansion economic periods.
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