Dynamic survey of the relationship between gold and crude oil’s price uncertainty with banks stock index -method of state space

Subject Areas : Financial engineering

Reza Eyvazlu ¹ (Assistant Professor, Tehran University, Faculty of Management, Finance and Insurance, Tehran, Iran.)
Saeed Bajalan ² (Assistant Professor, Tehran University, Faculty of Management, Finance and Insurance Group, Tehran, Iran)
Mostafa CHaharrahi ³ (MSc Financial Management, Tehran University, Faculty of Management, Finance and Insurance, Tehran, Iran)

Received: 2018-03-04 Accepted : 2018-05-21 Published : 2018-09-23

Keywords: Kalman filter algorithm, state space model, VARMA model,

Abstract :

The study of dynamics and relations between markets has been one of the research subjects. This paper use state space in vector autoregressive moving average model (VARMA) to investigate the effect of gold and crude oil’s price uncertainty on stock returns of the bank. In space-state equation system, the state variable is estimated by the Kalman filter and the specified parameters of the model by the maximum likelihood method. The results showed that gold and crude oil’s price uncertainty has a negative and significant effect on stock returns of the bank and the gold price uncertainty has a major effect on the stock returns of the bank. And furthermore, crude oil’s price uncertainty has a positive and significant effect on gold price uncertainty. In this research, daily OPEC crude oil prices, gold price (Bahar Azadi Coin- Old design) and banks stock index during the period 1390 to 1396-Shahrivar were used.