MACROECONOMIC VARIABLES AND STOCK MARKET: EVIDENCE FROM IRAN

Abstract

In this paper, we examine the relationship between Tehran Stock Exchange (TSE) price index and a set of three macroeconomic variables from 2001 to 2007 using Unrestricted Vector Autoregressive (VAR) model. Our analysis based on Impulse Response Function (IRF), indicate that the response of TSE price index to shocks in macroeconomic variables such as consumer price index (CPI), free market exchange rate, and liquidity (M2) is weak. In addition, generalized Forecast Error Variance Decomposition (FEVD) reveals that share of macroeconomic variables in fluctuations of TSE price index is about 12 per cent. Finally, it seems that political shocks or other economic forces can effect on TSE price index in Iran

Keywords

• Stock Price Index, Macroeconomic Variables, VAR Model

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