Journal of Economic Research (Tahghighat- E- Eghtesadi)

Journal of Economic Research (Tahghighat- E- Eghtesadi)

The Impact of Large-Cap Stocks on Stock market: How Focusing on Them Lead to Aggregate Capital Market Stabilization?

Document Type : Research Paper

Authors
Mohsen Behzadi Soufiani 1
Mohammad Shahbazi 2
1 Faculty of Economics, University of Tehran, Tehran, Iran.
2 Faculty of management, University of Tehran, Tehran, Iran.
10.22059/jte.2026.400465.1009027
Abstract
TEPIX is a weighted average of market capitals, and known as market representative. On the other hand, the equal-weighted index was proposed as representative of all issuers with same weights, which can have a trend in favor of or against the TEPIX. The present study examines the impact of large-cap stocks on the capital market. This study measures the effect of the 30 large-cap stocks, as a representative of the stock prices of large capital market companies, on TEPIX and equal-weighted indices, by controlling the variables of trading value, exchange rate, and interest rate. Daily data in the period from 22 October 2020 to 22 May 2025 and two approaches have been considered: the ordinary least squares and Threshold Regression using the first difference of the variable. Based on the findings, by using first approach, the index of 30 large-cap stocks has a positive and significant effect on TEPIX and explains its behavior well, expectedly. The effect of large-cap stocks on the equal-weighted index is also positive, but its coefficient shows much weaker effect, which is about 25 percent of its effect on the TEPIX. By using threshold approach and after selecting the exchange rate growth variable as the transition variable and determining the threshold for the two exchange rate growth regimes and its reduction, the coefficient of the index of 30 large-cap stocks on TEPIX in the low regime is about 3.5 times its coefficient on the equal-weighted index, but in the high regime, the coefficient of the index of 30 large-cap stocks on TEPIX is half of that coefficient on the equal-weighted index. Therefore, in addition to the dominance of 30 large-cap stocks over TEPIX trend, the generalization of this support to the entire market and consequently the effectiveness of the policy of supporting large-cap stocks in stabilizing the entire capital market is rejected. In the last five years, the approach of supporting large-cap stocks has increased TEPIX significantly, but there is no evidence of its reflection on other parts of the capital market. The continuation of this approach, given the forecast of a decline in production, can intensify the negative effects on the stocks of small-cap stocks.
Keywords
capital market
equal-weighted index
large-cap stocks
TSE index.
Subjects
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  • Receive Date 10 August 2025
  • Revise Date 23 February 2026
  • Accept Date 21 June 2026