ESTIMATING THE COMMON AND IDIOSYNCRATIC LATENT DYNAMIC FACTORS AFFECTING THE FINANCIAL MARKETS IN IRAN
Main Article Content
Abstract
Financial markets are considered one of the most vital components of any economy that provides immediate access to public capital and makes it available to commercial entities. The policymakers, who are responsible for planning economic development, are required to have sufficient control over this market behavior. The present research aimed at investigating and recognizing the common and idiosyncratic latent factors affecting the capital markets (dollars, coins, housing, and stock market) in Iran in the interval of 2011:03 to 2021:02. The results revealed that the latent common factor has the least impact on the stock market. The latent common factor affects the housing market with a coefficient of 0.73, and the coefficient of this variable was respectively 0.97 and 0.90 for the coin and dollar market, and the greatest effect of the latent common variable on the financial markets is observable in these two markets. On the other hand, the idiosyncratic latent variable has a greater impact on the stock market, but the greatest influence on dollars and coins has been imposed by the latent common factor, namely monetary policies. This result is in line with the results of studies accomplished in recent years in the country.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
References
Abbasian, E., Moradpour Oladi, M., & Abbasiuon, V. (2008). The Impact of Macroeconomic Variables on the Stock Market: Evidence from Tehran Stock Exchange Market. Iranian Journal of Economic Research, 36, 135-152.
Alavi Rad, A. (2011). Macroeconomic Variables and Stock Market: Evidence from Iran. International Journal of Economics and Finance Studies, 3, 1-10.
Bahar Moghadam, M., & Kavaruei, T. (2012). The relationship between days and months of the year, macroeconomic variables, and stock returns in the Tehran stock exchange. Shahid Bahonar University of Kerman, Iran.
Breiman, L., & Friedman, J.H. (1985). Estimating transformations for multiple regression and correlation. J Am Stat Assoc, 80, 580–598.
Burns, A. F., & Mitchell, W. C. (1946). Measuring business cycles (No. burn46-1). National bureau of economic research.
Chen, N. F., Roll, R., & Ross, S., (1986). Economic forces and the stock market. Journal of Business, 59, 383 - 403.
Cornell, B. (1983). The MOEY Supply Announcements Puzzle: Review and Stock Returns. Jornal of Financioal Research, 29, 523-535.
Darabi R., & Ali Farahi M. (2010). the impact of macroeconomic variables on risk and total return of stocks, emphasizing the stocks-inflation return model. Azad Islamic University of Tehran of Political Economy, 96, 221-245.
Diebold, F. X., & Rudebusch, G.D. (1996). Measuring Business Cycles: A Modern Perspective. Review of Economics and Statistics, 78, 67–77.
Diebold, F.X., & Rudebusch, G.D. (1996). Measuring Business Cycles: A Modern Perspective. The Review of Economics and Statistics, 78(1), 67-77
Dornbusch, R., & Fischer, S. (1980). Exchange rates and the current account. The American economic review, 70(5), 960-971.
Francis, X. D., & Rudebusch, D. (1996). Measuring Business Cycles: A Modern Perspective. The Review of Economics and Statistics, 78(1), 67-77.
Frankel, J. A. (1979). On the mark: A theory of floating exchange rates based on real interest differentials. The American economic review, 69(4), 610-622.
Hamilton, J. D. (1989). A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle. Econometrica, 57(2), 357-384. http://dx.doi.org/10.2307/1912559
Haruna, I., Yazidu, U., & Paul, B. (2013). Macro-economic Variables and Stock Market Returns in Ghana: Any Causal Link? Asian Economic and Financial Review, 1044-1062.
Hendriksen, E., & Van Breda, M. (1992). Accounting Theory. Fifth Edition ed. The McGraw- Hill.
Hsing, Y. (2014). Impacts of macroeconomic factors on the stock market in Estonia. Journal of Economics and Development Studies, 2(2), 23-31.
Ifuero, O.O., & Esther Ikavbo, E.O. (2012). The Relationship between Macroeconomic Variables and Stock Market Index in Nigeria. J Economics, 3(1), 55-63.
Khodaparasti, R. B. (2014). The Role Of Macroeconomic Variables In The Stock Market In Iran. Polish Journal Of Management Studies, 10(2).
Kim, C., & Nelson, C. (1999). State-Space Models with Regime-Switching: Classical and Gibbs-Sampling Approaches with Applications. MIT Press, Cambridge, Massachusetts.
Laopodis, N. T. (2013). Monetary policy and stock market dynamics across monetary regimes. Journal of International Money and Finance, 33, 381-406.
Marcelle, C. (1998). An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching. Symposium on Forecasting and Empirical Methods in Macroeconomics and Finance, 39(4), 969-996
Mehrara, M. (2007). The Relationship between Stock Market and Macroeconomic Variables: a Case Study for Iran. Iranian Economic Review, 12(18), 51-62.
Mohammadi, T., & Taghavi, M. (1999). Survey of Effective Variables on Tehran's Stock Market Price Index. Journal of Planning and Budget, 31-60.
Myung, J.K., & Ji-Sung, Y. (1995). A new index of coincident indicators: A multivariate Markov switching factor model approach. Journal of Monetary Economics, 36(3), 607-630
Nasrollahi, Z., Nasrollahi, K., Mirza Babaei, S.M. (2011). Investigating the relationship between macroeconomic variables and the stock price index in Iran (vector error correction model approach). University of Yazd, Iran. -Ross, S., 1976, The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341–360.
Saeedi, P. & Amiri, A. (2010). The investigation of macroeconomic variables' relation with TSE. Economic Modeling Quarterly, 2, 111-130.
Samadi, S., Bayani, O., & Ghalandari, M. (2012). The relationship between macro-economic variables and stock returns in the Tehran stock exchange. International Journal of Academic Research in Business and Social Sciences, 559-573.
Sekhara, R., Chandra, K., & Radjeswari, A. (2000). Macroeconomic Factors And Stock Prices In India: A Study. capital market conference. Navi Mumbai, 21-22.
Shahabadi A., Naziri M., & Havvaj S. (2013). The impact of macroeconomic variables on systematic risk of Tehran stock exchange. Bu Ali Sina University of Hamadan, Iran.
Stock, J, H., & Watson, M.W. (1991). A Probability Model of the Coincident Economic Indicators, in Leading Economic Indicators: New Approaches and Forecasting Records. eds. K. Lahiri and Moore. Cambridge University.
Stock, J.H., & Watson, M.W. (1989). New Indexes of Coincident and Lending Economic Indicators. NBER
Wongbangpo, P., & Sharma, S.C. (2002). Stock market and macroeconomic fundamental dynamic interaction: ASEAN-5 countries. Journal of Asian Economics, 27-51.
Zou, W., & Chen, J. (2013). A Markov regime‐switching model for crude‐oil markets: Comparison of composite likelihood and full likelihood. Canadian Journal of Statistics, 41(2), 353-367.