Effect of Oil Price Volatility and Petroleum Bloomberg Index on Stock Market Returns of Tehran Stock Exchange Using EGARCH Model

Subject Areas : Financial Mathematics

Gholamreza  Zomorodian ¹ (Department of Management, Islamic Azad University Central Tehran Branch, Tehran, Iran.)
Laleh  Barzegar ² (Department of Management Accounting, University of Rasht, Rasht, Iran)
Soghra  Kazemi ³ (Department of Management Accounting, University of Rasht, Rasht, Iran)
Mohammad  Poortalebi ⁴ (Department of Management, University of Tehran, Tehran, Iran)

Received: 2017-01-30 Accepted : 2017-01-30 Published : 2016-11-01

Keywords: EGARCH model, Oil price volatility, Petroleum products index, Tehran stock exchange index,

Abstract :

The present research aims to evaluate impacts of crude oil price return index, Bloomberg Petroleum Index and Bloomberg energy index on stock market returns of 121 companies listed in Tehran stock exchange in a 10 years' period from early 2006 to April 2016. First, explanatory variables were aligned with petroleum products index mostly due to application of dollar data. Subsequently, to check variables stationary, Dickey-Fuller generalized test was considered and ARCH test was adopted to check for Heteroscedasticity in error terms and residual values. Finally, EGARCH was used to address model heteroscedasticity. The results showed that variations of Petroleum Bloomberg index, crude oil price and Bloomberg energy index could explain changes in Tehran stock exchange index returns. Any rise in oil prices increases total Stock Exchange returns. On the other hand, Stock Exchange index returns is aligned with Petroleum Bloomberg index.at the same time changes in Tehran stock exchange index returns was reversely correlated with changes in energy index return among others.

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