Mansour Zarra Nezhad; Sahar Motamedi
Volume 12, Issue 46 , October 2012, , Pages 101-116
Abstract
Considering the pivotal role of stock market in the process of economic development, this research focuses on the relationship between the variables of exchange rate, interest rate, oil price shock and overall price index of Tehran Stock Exchange. For this purpose, we have applied three different methods ...
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Considering the pivotal role of stock market in the process of economic development, this research focuses on the relationship between the variables of exchange rate, interest rate, oil price shock and overall price index of Tehran Stock Exchange. For this purpose, we have applied three different methods of Toda and Yamamoto causality test (1995), Granger vector error correction causality test (1987) and Pesaran, Shin and Smith’s (2001) Auto Regressive Distributed Lag (ARDL). The empirical findings show that there is a long-run relation between the variables of the stock price index, exchange rate, inflation rate, interest rate and oil price shock. Based on Toda and Yamamoto causality test, there is a one-way causality from variables of exchange rate, inflation rate and interest rate to stock price index, and from stock price index, exchange rate and interest rate to inflation rate, as well as from interest rate to exchange rate. The results of Granger vector error correction test showed that there is a short run causality from exchange rate, inflation rate and interest rate to stock price index and a long run causality from exchange rate, inflation rate, interest rate and oil price shock to stock price index.
