Asymmetric Effects of Stock Market shocks on Foreign Exchange Market in Iran: Application of DDC and APARCH Models

Subject Areas : Labor and Demographic Economics

Mansoreh Zeraati ¹ , Masoud Soufi Majidpour ² , Mamood Mahmoodzadeh ³ , Mhdi Fathabadi ⁴

1 - PhD student, Department of Economics, Firuzkooh Branch, Islamic Azad University, Firuzkooh, Iran
2 - Assistant Professor, Department of Economics, Firuzkuh Branch, Islamic Azad University,Firuzkuh , Iran
3 - Associate Professor, Department of Economics, Firuzkuh Branch, Islamic Azad University, Firuzkuh, Iran
4 - Assistant Professor, Department of Economics, Firuzkuh Branch, Islamic Azad University, Firuzkuh, Iran

Received: 2023-05-30 Accepted : 2023-10-10 Published : 2023-09-22

Keywords: Shocks, Stock Market, Exchange Rate, Asymmetric, DDC, APARCH, JEL Classification: G19, N25, F31, C58,

Abstract :

AbstractIn this paper, the asymmetric effects of stock market shocks on the exchange rate in Iran were evaluated using the daily data from 20/03/2016 to 21/06/2023 using cointegration and APARCH methods. The evidence shows that both shocks (positive/negative) are repeatedly found in the Iranian stock market. Out of 2642 days, 1601 days of the market had negative returns and 1041 days had positive returns. In 511 days the market has fluctuated more than one standard deviation (big shocks). Estimates show that there is a strong long-term relationship between these two markets. The findings showed that the reaction of exchange rate to the positive and negative shocks of the stock market is asymmetric and has a long-term effect on the exchange rate. The behavior of the exchange rate towards negative and positive impulses is cyclical. The big negative shocks in the stock market gradually increase the return of exchange rate and eventually this effect does not disappear and puts the exchange rate at a higher level. But the effect of the big positive shocks in the stock market on the exchange rate is dampening. Negative shocks have a greater impact on conditional volatility compared to positive momentum. Also, the fluctuation of the stock market shows a very stable pattern. Keywords: shocks, stock market, exchange rate, asymmetric, APARCH.JEL Classification: G19, N25, F31, C58

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