Analyzing the Relationship between the Foreign Exchange Market and the Tehran Stock Exchange Price Index: Nonparametric Approach and Copula

Document Type : Research Paper

Authors

1 Ph.D. Candidate in Economics, Faculty of Administrative Science and Economic, Isfahan University, Isfahan, Iran

2 Associate Professor of Economics, Faculty of Administrative Science and Economic, Isfahan University, Isfahan

3 Associate Professor of Economics, Faculty of Administrative Science and Economic, Isfahan University, Isfahan, Iran

4 Associate Professor of Statistics, Department of Statistics, Isfahan University, Isfahan, Iran

Abstract

For investors and policymakers, it is essential to understand the dependencies between the stock market and the foreign exchange market. In this study Copula approach is applied to estimate correlation between the exchange rate, price jump, and the Tehran stock exchange price index (TEPIX) from 2006 to 2015. Moreover, nonparametric approach is used to calculate the mean, diffusion, and price jump of the TEPIX. The empirical results show that the mean of annual return, diffusion, and price jump of the TEPIX are 19 percent, 0.012, and 26, respectively. In addition, the results of Granger causality test show a unidirectional relationship between the exchange rate and TEPIX, running from the exchange rate to the TEPIX. According to Copula approach, the Correlation coefficient between the TEPIX and the exchange rate is equal to 0.85.
JEL Classification: C02, C14, F31, G00.

Keywords

References

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History

  • Receive Date: 19 July 2016
  • Revise Date: 01 January 2017
  • Accept Date: 27 February 2017

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