Response of Stock Markets to Monetary Policy: The Tehran Stock Market Perspective

Naoyuki Yoshino, Farhad Taghizadeh-Hesary, Ali Hassanzadeh, Ahmad Danu Prasetyo

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

The article assesses the response of Tehran stock prices to exogenous monetary policy shocks, using a vector error correction model for the 1998Q1–2013Q2 period. Monetary policy is transmitted to stock market price through three routes: money by itself, exchange rate and inflation. Our result in this paper points to the fact that stock prices increase persistently in response to an exogenous easing monetary policy. Variance deposition results show that, after ten periods, the forecast error variance of more than 53 per cent of the Tehran Stock Exchange Price Index (TEPIX) can be explained by the exogenous shocks to the US dollar–Iranian rial exchange rate, while this ratio for exogenous shocks to the Iranian real gross domestic product was only 17 per cent. The article argues that such evidence can be accounted for by an endogenous response of the stock prices to the monetary policy shocks.

Original languageEnglish
Pages (from-to)517-545
Number of pages29
JournalJournal of Comparative Asian Development
Volume13
Issue number3
DOIs
Publication statusPublished - 2014 Sep 2

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stock market
monetary policy
price index
stock exchange
market price
gross domestic product
inflation
money
Monetary policy
Stock prices
Stock market
evidence
Exogenous shocks
Monetary policy shocks
Exchange rates

Keywords

  • Asian stock markets
  • modelling the stock prices
  • monetary policy
  • Tehran stock exchange
  • vector error correction model (VECM)

ASJC Scopus subject areas

  • Sociology and Political Science
  • Political Science and International Relations
  • Economics and Econometrics

Cite this

Response of Stock Markets to Monetary Policy : The Tehran Stock Market Perspective. / Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Hassanzadeh, Ali; Prasetyo, Ahmad Danu.

In: Journal of Comparative Asian Development, Vol. 13, No. 3, 02.09.2014, p. 517-545.

Research output: Contribution to journalArticle

Yoshino, Naoyuki ; Taghizadeh-Hesary, Farhad ; Hassanzadeh, Ali ; Prasetyo, Ahmad Danu. / Response of Stock Markets to Monetary Policy : The Tehran Stock Market Perspective. In: Journal of Comparative Asian Development. 2014 ; Vol. 13, No. 3. pp. 517-545.
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