The nexus between Prices and Macroeconomic Variables in Iran
Languages of publication
This paper examines the causal relationship between stock prices and macroeconomic aggregates in Iran, by applying the techniques of the long–run Granger non–causality test proposed by Toda and Yamamoto (1995). We test the causal relationships between the TEPIX Index and the three macroeconomic variables: money supply, value of trade balance, and industrial production using quarterly data for the period 1993:1 to 2010:4. The results show unidirectional long run causality from macroeconomic variables to stock market. Accordingly, the stock prices are not a leading indicator for economic variables, which is inconsistent with the previous findings that the stock market rationally signals changes in real activities. Contrarily, the macro variables seem to lead stock prices. So, Tehran Stock Exchange (TSE) is not informationally efficient.
-  Abdalla, I. S. A. and Murinde V. (1997). “Exchange Rate and Stock Price Interactions in Emerging Financial Markets: Evidence on India, Korea, Pakistan, and Philippines, ” Applied Financial Economics, 7, 25-35.
-  Aggarwal, R. (1981). “Exchange Rates and Stock Prices: A Study of the US Capital Markets under Floating Exchange Rates,” Akron Business and Economic Review, 12, 7-12.
-  Ajayi R.A., Friedman J. and Mehdian S.M. (1998). “On the Relationship between Stock Returns and Exchange Rates: Tests of Granger Causality,” Global Finance Journal, 9, 241-51.
-  Aylward, A., and Glen, J. (2000). “Some International Evidence on Stock Prices as Leading Indicators of Economic Activity,” Applied Financial Economics, 10, 1-14.
-  Bahmani-Oskooee M. and Sohrabian A. (1992). “Stock Prices and the Effective Exchange Rate of the Dollar,”Applied Economics, 24, 459 – 464.
-  Binswanger, M. (2000). “Stock Returns and Real Activity: Is There Still a Connection?,” Applied Financial Economics, 10, 379-387.
-  Bittlingmayer, G. (1998). “Output, Stock Volatility, and Political Uncertainty in a Natural Experiment: Germany, 1880-1940,” Journal of Finance, 53, 2243-2257.
-  Chen, N.F., Roll, R. and Ross, S.A. (1986). “Economic Forces and the Stock Market,” Journal of Business, 59, 383-403.
-  Choudhry, T. (1997). “Stochastic Trend in Stock Prices: Evidence from Latin American markets,” Journal of Macroeconomics, 19, 285-304.
-  Dickey, D.A., and Fuller, W.A. (1979). “Distribution of the Estimators for Autoregressive Time Series with a Unit Root,” Journal of the American Statistical Association, 74, 427-437.
-  Fama, E.F. (1981). “Stock Returns, Real Activity, Inflation and Money” American Economic Review, 71, 545-65.
-  Fama, E.F. (1990). “Stock Returns, Expected Returns, and Real Activity,” Journal of Finance, 45, 1089-1108.
-  Habibullah, M.S. and Baharumshah, A.Z. (2000).“ Testing for Informational Efficient Market hypothesis: The Case for Malaysian Stock Market” In M.S. Habibullah and A.Z. Baharumshah (eds.). Issues on Monetary and Financial Economics: Studies on Malaysian Economy
-  Habibullah, M.S., Baharumshah, A.Z., Azali, M. and Azman-Saini, W.N.W. (2000), “Stock Market and Economic Activity: An Application of Toda-Yamamoto Long-Run Causality Test”, in: ASEAN in an Interdependent World, ed. Habibullah, M.S. Ashgate Publishing Company: Aldershot, 81-94.
-  Ibrahim, M.H. (1999). “Macroeconomic Variables and Stock Prices in Malaysia: An Empirical Analysis,” Asian Economic Journal, 13, 219-231.
-  Johansen, S. (1991). “Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models,” Econometrica, 59,1551-1580.
-  Lee, B.S. (1992). “Causal Relations Among Stock Returns, Interest Rates, Real Activity and Inflation,” Journal of Finance, 47, 1591-1603.
-  Meyer, L.H. (2001). “Does Money Matter?”, Federal Reserve Bank of St. Louis Review, 83(4), 1-15.
-  Mok, H.M.K. (1993). “Causality of Interest Rate, Exchange Rate and Stock Prices at Stock Market Open and Close in Hong Kong,” Asia Pacific Journal of Management, 10,123-143.
-  Morley B. and Pentecost E.J. (2000). “Common Trends and Cycles in G7 Countries Exchange Rates and Stock Prices,” Applied Economic Letters, 7, 7-10.
-  Muradoglu, G., Metin, K., and Argac, R. (2001). “Is There a Long-Run Relationship Between Stock Returns and Monetary Variables: Evidence from an Emerging Market,” Applied Financial Economics, 11, 641-649.
-  Olesen, J.O. (2000). “Stocks Hedge against Inflation in the Long Run: Evidence from a Cointegration Analysis for Denmark”, Working Paper 6-2000, Department of Economics, Copenhagen Business School.
-  Panda, Chakradhara and Kamaiah, B. (2001). “Monetary policy, Expected Inflation, Real Activity and Stock Returns in India: An Empirical Analysis,” Asian – African Journal of Economics and Econometrics, 1, 191-200.
-  Schwert, G.W. (1990). “Stock Returns and Real Activity: A Century of Evidence,” Journal of Finance, 45, 1237-1254.
-  Serletis, A. (1993). “Money and Stock Prices in the Unites States,” Applied Financial Economics, 3, 51-54.
-  Thornton, J. (1993). “Money, Output and Stock Prices in the UK: Evidence on Some (Non)Relationships,” Applied Financial Economics, 3, 335-338.
-  Toda, H.Y. and T. Yamamoto. (1995). “Statistical Inference in Vector Autoregressions with Possibly Integrated Processes,” Journal of Econometrics, 66, 225-250.
Publication order reference