Exchange Rate

Banks play an important role in the Iranian economy which has a bank-based financial system. We examined the impact of exchange rate volatility as a determinant of banks' performance. In recent years, the exchange rate has been volatile in the Iranian economy and have an adverse effect on banks' performance. This study, investigate the issue for the period 2007-2017 for 14 Iranian banks. Exchange rate fluctuations are derived by GARCH method and the effect of its fluctuations on bank performance examined using panel data method. In order to evaluate banks' performance, we used two criteria, namely liquidity and profitability. Estimation of econometric model using panel data by random effects indicated that exchange rate volatility has a negative and statistically significant effect on banks' capital return ratio. Exchange rate volatility is also a determinant in increasing the ratio of lending to total bank deposits, as it increases the financial gap and creates the credit risk that the gap entails. JEL: N10, G01, E44, C22.

The aim of this study was to investigate the asymmetric effects of exchange rate fluctuations on Stock index of Tehran Stock Exchange. For this purpose, we first calculated the exchange rate fluctuations using model General Autoregressive Conditional Heteroskedastic (GARCH), and then the effect of these fluctuations on the Stock index of Tehran Stock Exchange was estimated using the Generalized Method of Moments (GMM). The data were used daily during the period 2010-2017. Also, the effect of positive and negative fluctuations were separated and included as independent variables in the model. The results of fitting the model indicate that the effect of exchange rate and oil price fluctuations on the Stock index of Tehran Stock Exchange is direct. The results of the model estimation showed that the effect of the positive and negative fluctuations of the exchange rateon Stock Index of Tehran Stock Exchange is asymmetric, so that the effect of the exchange rate increase on the Stock index of stock exchange is far greater than the effect of its reduction. Oil price fluctuations have a direct relationship with the Stock index of Tehran stock exchange. JEL Classification: D82, C51,E32, G00.

In the first nine months of 2018, the triple increase of dollar price made the stock market an attractive place for speculation, especially for non-professional investors. Hence, this study was aimed to investigate the profitability of speculation in the foreign exchange market (dollar) and to compare it with investment in three indices of sugar, oil products, and basic metals. First, the conditional Sharpe ratio was calculated separately for these four assets. Then, six investment portfolios were developed for these four assets. The results showed although dollar speculation with mean daily return of 0.6% had the highest return among the ten investment assets, dollar speculation was ranked last, or tenth (0.096) in terms of performance and profitability by considering the standard deviation or daily conditional risk using conditional Sharpe ratio. Moreover, the results indicated that from among the six portfolios with equal weight, three investment portfolios consisting of merely Tehran Stock Exchange indices had a better performance than three investment portfolios comprising dollar speculation and each stock exchange index. It was also found that the risk of lack of capital diversification by investors was higher than that of accepting a higher-level risk.

The recent global crisis, as a big crash ( Baldwin and Simon , 2009), has reduced foreign demand growth affecting total countries€™ exports. Given the importance of foreign trade to nations and the reality that recent crisis has affected international trade we study the effects of the global financial crisis on trade relations between countries by using Ma and Cheng (2003) approach and by applying gravity model to both selected developed and developing countries during 1998-2010. Emprical results have approved negative effects of financial crisis on international trade in the countries under consideration. The result obtained is evident that such incidence seems to be significant to explain a sharp fall in the world exports.  JEL Classification : G01, F10

  The main purpose of present study is to analyze the relationship between stock and exchange markets in two Asian countries, Iran and South Korea. A monthly time series of stock price and exchange rate are used over the period 2002: 05 - 2012: 03. The data is collected from the Central Bank of each country and WDI. The calculated stock return and real exchange rate change are used in analysis. An econometric multiple generalized autoregressive conditional heteroscedasticity (MGARCH) BEKK method and the Rats software are applied to analyze a dynamic relationship between two markets in each country. The estimated results show a bidirectional relationship between two markets in South Korean economy and only a unidirectional relationship from exchange market to stock market in Iranian economy. The persistence of volatility transmission effects of each market on its own is also found in each economy. In the exchange market, this effect is in opposite direction in Iran compared to Korea, whereas in the stock market both effects are positive and almost the same in two economies. The policy implication of finding is clear. The financial policymakers should watch both stock and exchange markets in two economies to prevent the bidirectional volatility effects between two markets in Korea and the unidirectional volatility from the exchange market to sock market in Iran.       JEL Classification : F31, G10  

In this paper, we will review the foreign exchange market and will try to extract an exchange market pressure and an intervention index for Iran by following the Weymark (1995) approach to evaluate the Central Bank of Iran’s exchange rate policy during 1368:Q1 to 1391:Q3. The estimation method employed, is the econometric technique known in the literature as the Two-Stage Least Squares (2SLS).The exchange market pressure’s mean value of 0.062 provides evidence that depreciating pressure remained dominant over the entire sample period. Also, the mean value of the intervention index is 0.44, indicating that the foreign exchange reserve and exchange rate changes absorbed forty-four and fifty-six percent of the pressure, respectively. Otherwise the results of the paper show that on an average there was a downward pressure on Iran’s currency and the Central Bank of Iran pursued an active intervention policy. Specifically, as the intervention index shows, the Central Bank of Iran used both exchange rate and foreign exchange reserve interventions for restoring the foreign exchange market to equilibrium levels, a policy known as the managed float exchange rate regime.

The primary purpose of this study is twofold: Firstly, using the Markov Regime Switching model throughout December 2008 to February 2020, it investigates and compares the nonlinear impacts of exchange rate movements and monetary policies on Petroleum Stock Index, PSI, in Iran. Accordingly, some control variables, such as OPEC oil price, inflation rate, and international sanctions, have also been used to model these relationships more accurately. Secondly, it is an empirical attempt to trace the historical changes in the PSI behavior through distinguishing the precise regime numbers, and the relationships between the exogenous variables and the PSI. Our results confirm that the effects of both exchange rate movements and monetary policies on the petroleum stock market return are direct and significant. More interestingly, the more we move from regime one to regime three, the greater the effects of the research variables on the index, except for the impact of OPEC oil prices. Our empirical findings further suggest as the effects of sanctions intensify, the influences of monetary policy and exchange rate movements would have a more significant impact on the petroleum stock index returns.

Volatility of exchange rate while changes from time to time, is expected to affect firm level operations as well as aggregate level outcomes i.e. macroeconomic performance. This paper, investigates the effects of exchange rate volatility on aggregate production in Iran using a Structural Vector Auto Regressive model with Exogenous Variables (SVARX). The model is estimated based on macroeconomic data during 1990q2-2015q1. Impulse response functions show that realization of a positive shock to the exchange rate volatility-measured by quarterly coefficient of variation derived from daily exchange rate data set rather than common GARCH-based measures- is associated with a significant production drop. These results are robust in reference to changing output measures. We also provide some necessary sensitivity analysis to check robustness of the results with respect to recursive restrictions which are imposed to identify the structural model. After all this robustness checks the model confirmed negative effect of exchange rate volatility on output in Iran's economy. Furthermore, the results show that CPI and exchange rate will significantly increase when exchange rate volatility rises while import declines.

This paper uses monthly price indices of 448 items of manufacturing sector in 2004:4 to 2016:01, to study the effect of exchange rate and its volatilities on price setting behavior of manufacturing sectors. Given that, many manufacturing sectors in Iran need to import raw materials, intermediate and capital goods in their production process, it is expected that exchange rate variations affect price setting behavior indices (frequency and size of price changes) in various manufacturing sectors. The results show that an increase in the exchange rate and also an increase in the exchange rate volatility lead to an increase in the frequency of price changes. In addition, while the exchange rate, itself, does not affect the size of price changes, the exchange rate volatility negatively affects the size of price changes. That is, manufacturers’ response to the exchange rate increase is limited to an increase in the frequency of price changes, but an increase in the exchange rate volatility increases the frequency of price changes and decreases the size of price changes. Also, the frequency of price changes in manufacturing sectors with high level of competitiveness and low level of raw material inventory is positively affected by the exchange rate increase.

One of the features of a financial market, the stock market, in particular, is the market sentiment which is the overall attitude of investors toward a particular security or financial market. Investors always seek to create a portfolio with minimum risk while maintaining the expected return level. Therefore, perceiving the relationship between the stock returns and markets returns can be helpful for investors to create an optimal portfolio. On this basis, the present study aims at investigating the Dynamic Conditional Correlation (DCC) between the returns on the domestic markets (industry stock market and exchange rate) and foreign markets using monthly data of oil and base metals including total metals, copper, steel and returns on the stock price index in Iran during March 2001 to April 2017 using the Dynamic Conditional Correlation Fractionally Integrated Asymmetric Power ARCH (DCC-FIAPARCH) approach. The obtained results indicate a statistically significant and positive DCC coefficient between metals, industrial products, and copper returns with the stocks returns. Consequently, it is not possible to put each of these assets with the stocks in an identical situation (purchase or sale), but instead they should be always situations for risk control. However, in connection with other markets, DCC is not significant; accordingly, assets can be placed in the investment portfolio together with the stocks.

In this study, we examine the correlation between stock returns of Export-oriented (EOIs) and Import-oriented (IOIs) industries and exchange rates, to derive stock-exchange optimal weights, attempting to manage the risk of investors in the capital market. To do so, the ADCC and DCC models are used. The data consists of the stock return of the listed industries, and the daily exchange rate from 2008 to 2020. The results suggest that EOIs have a dynamic asymmetric conditional correlation, and IOIs have a dynamic symmetric conditional correlation with the exchange rate. Moreover, the results indicate that in both currency crises, the weight of optimal portfolio in all industries except pharmaceuticals, in non-crisis period is over 50% and in the crisis period is less than 50%. Accordingly, and to reduce the risk of the portfolio, in the non-crisis period, investors should invest more than half of a one-Rial portfolio to dollar exchange, and in the crisis period, they should allocate less than half of a one-Rial portfolio to this currency. In case of the currency crisis, it is suggested that investors invest in the stock of basic metals, because this industry is a pioneer in attracting currency crisis and increasing stock value of the industry through future cash flow and replacement value, and reduce the stock of pharmaceuticals and computers in their portfolio, due to attracting negative effects of the exchange market.

This study was conducted to determine the effect of the asymmetric oil price shock, tax revenues, resource curse, stock market, and business cycles of Iran by using the structural vector auto regression model (SVAR) for the 1984-2018 period. According to results of the estimated SVAR model, an impulse imposed by the duration of sanctions on oil exports led to an 89% increase in production gap, and impulses caused by liquidity and stock price led to 86% and 53% rises in production gap, respectively. Variation in oil and foreign exchange earnings results in different and even conflicting changes in foreign and domestic sectors of the economy, which subsequently affect the economic performance positively or negatively. Regarding economic structure and principles, a constant increased exchange rate leads to economic growth while a cross-sectional increment in exchange rate does not lead to any economic prosperity. Increased exchange rate and decreased domestic money weakness will increase foreign debt, which in turn causes liquidity shortage. Overall, the liquidity shortage of economic firms has a negative impact on the return of stock and business cycles. Hence, policymakers must pay considerable attention to macroeconomic indicators.

The purpose of this study was to examine the effect of uncertainty in economic policy on the stock price crash risk. In this applied descriptive-analytical ex post facto study, the statistical population included the companies listed on the Tehran Stock Exchange. Over a seven-year period, 148 companies are selected using the systematic sampling method (2015–2021). In this study, the negative skewness of return on equity (ROE) and down-to-up volatility were used to assess the stock price crash risk (dependent variable) and uncertainty in economic policy (independent variable). The data was then analyzed using the multivariate regression model. The results of the hypothesis testing indicated that volatility in the interest rate, dollar exchange rate, inflation, and economic growth had a positive significant effect on the stock price crash risk or the negative skewness of ROE and down-to-up volatility. Hence, given the effects of macroeconomic variables on the ROE, in order to achieve economic sustainability, the Government of the Islamic Republic of Iran should pay close attention to the adoption of macroeconomic policies, prevent economic policymakers and planners from implementing hasty unscientific policies, and increase the share of tax revenues from income sources.

According to the literature, macroeconomic variables have significant effects on financial markets. In addition to investors and traders in these markets, researchers have also paid special attention and sensitivity to these changes. The purpose of this study is to investigate the macro-structural determinants affecting the price index of the Tehran Stock Exchange in the period 1991-2019. To this purpose, the fully modified ordinary least squares estimator (FMOLS) and the Hudrick Prescott filter (HP) were used. Based on the estimation results of the econometric model, economic growth, government budget deficit, and exchange rate have had positive and significant effects on the total price index of the Tehran Stock Exchange, while negative effects on money supply (liquidity) and oil revenue uncertainty index (extracted by HP filter). Economic growth has had a significant effect on the total price index of the Tehran Stock Exchange resulting in negative returns. JEL Classification: G12, C50, C22, E44

The financial anomalies, which have brought about challenges for the nature of efficient-market hypothesis, provide ample experimental evidence on the deviation of market from rationality. According to the efficient-market hy-pothesis, investors avail themselves of all the information available in the market, and then attempt a thorough and painstaking interpretation of it. The empirical evidence, however, reveals that most investors fail to imple-ment rigorous information processing, thereby rendering to a number of behavioral theories concerning market inefficiency and biased information processing. The current research sets out to identify and scrutinize the im-pact of the CEO’s perceptual biases in judgment and economic decision-making on the reporting quality of the firms listed on the Tehran Stock Ex-change. The Purpose of this study CEO Overconfidence and Overinvestment by Role of Economic moderators Tehran Stock Exchange (TSE). One hun-dred five companies were selected as the sample size by systematic removal sampling reviewed in 2012-2019. Due to its dichotomous dependent variable, this study uses probit regression to test the research hypotheses. The results indicated the significant positive effect of CEO overconfidence on overin-vestment. It was also noted that Exchange Rate strengthens the positive effect of CEO overconfidence on overinvestment. Based on these results, the CEO's decisions as a decision-maker in charge of any company, especially under inflationary conditions, can play a substantial role in future corporate investment levels. The findings reveal that the indices of the CEO’s percep-tual biases in judgment and economic decision-making exert a significantly negative effect on financial reporting reliability and competitiveness.

This study employs a quantitative approach, utilizing the gravity model and FMOLS estimation, to examine how economic sanctions affect the trade relationship between Iran and Nigeria. Additionally, it explores the influence of factors such as GDP, exchange rate, strong sanctions, and weak sanctions. By doing so, this research contributes to the existing knowledge on bilateral trade between these two nations and provides valuable insights into areas that require attention for fostering trade development between them. The research findings reveal that in the bilateral trade relationship between Iran and Nigeria, there exists a positive correlation between GDP and weak sanctions (LIM) with trade. An increase of 1% in GDP leads to a 7.79% increase in trade, while a 1% increase in weak sanctions contributes to a 3.91% increase in trade. Conversely, strong sanctions and exchange rate have a negative impact on trade, with a 1% increment in strong sanctions resulting in a 1.18% decrease in trade, and a 1% increment in exchange rate leading to a 1.96% decrease in trade.