Non-Linearities in the relation between oil price, gold price and stock market returns in Iran: a multivariate regime-switching approach

Mamipour, Siab and Vaezi Jezeie, Fereshteh (2015): Non-Linearities in the relation between oil price, gold price and stock market returns in Iran: a multivariate regime-switching approach.

Abstract

Iran Stock Exchange is the most important component of Iran capital market and more attention has been paid to it in recent years. Many factors affect the Iran stock exchange. In this paper, the effects of oil price and gold price on stock market index are investigated and a three regime Markov Switching Vector Error Correction model is used to examine the nonlinear properties model during the period January 2003 to December 2014. The results of the study shows that the relationships between variables can be analyzed in three different status, so that the three regimes, respectively, represents the “great depression”, “mild depression” and “expansion” period. The results of the model show that the impact of oil price on stock returns is negative and significant in all three regimes; this means that with rising oil price, stock market returns are reduced. But the relationship between gold price and stock market returns varies during the period, according to market conditions. It means that positive shock inflicted on the price of gold in the short-run (10 months) leads to reduce the stock returns and in the medium-term and long-run, it leads to increase the stock returns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock Market Price, Oil Price, Gold Price, Markov Switching-Vector Error Correction Model (MS-VECM)
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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