The effects of changes in the price of crude oil on the Tehran Stock Exchange index: The use of M-GARCH approach BEKK

Fakari Sardehae, Behzad; Sabuhi, Mahmud; Shahpuri, Ahmadreza

doi:10.22059/jte.2017.221562.1007409

The effects of changes in the price of crude oil on the Tehran Stock Exchange index: The use of M-GARCH approach BEKK

Document Type : Research Paper

Authors

Behzad Fakari Sardehae ¹

Mahmud Sabuhi ²

Ahmadreza Shahpuri ³

¹ Ph.D. Student of Ferdowsi University of Mashhad

² Faculty Members of Ferdowsi University of Mashhad

³ Ph.D. Student at the University of Surrey

10.22059/jte.2017.221562.1007409

Abstract

Volatility and oil shocks in the oil producing countries could be impacting the price index of the Stock Exchange. This study aimed to investigate the effects of recent oil shocks on the price index of the Stock Exchange. For this goal, two short and long-term regimes created and MV-GARCH model and, BEKK solution used for the daily data from 21 March 2001 to 22 December 2014. The results showed that in the short and long run, the oil shocks have negative effects on the Stock Exchange. In addition, the impact of oil price volatility on the Stock Exchange is negative in the long-run. Due to the fact that in the short run oil price volatility has a positive effect on the oil price index, this effect has led to fluctuations in the stock index. With this in mind a policy should be taken to prevent the transfer the fluctuation of the price of oil to the index. In this way, we can use stock insurance, stock coupons, risk buying and selling, inventing new markets, changing stock portfolios and encouraging people to invest in the stock market.
JEL Classification: B41, E62, G10

Keywords

Keywords: Stock Exchange Price Index

Crude Oil

MV-GARCH

BEKK

Markov Switching

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