Factors Affecting the Long-Run Stock Prices Performance in Iran

Transcription

1 America Joural of Ecoomics 2017, 7(3): DOI: /.ecoomics Factors Affectig the Log-Ru Stock Prices Performace i Ira Maryam Zare Islamic Azad Uiversity of Shiraz, Ira Abstract Stock market has always attracted the attetio of ecoomist ad stock maagers. Also, higher stock prices reflect a icrease i the discouted expected earigs, providig potetially useful iformatio about future ecoomic growth. Hece, the factors affectig o this market are examied i Ira durig For this reaso, ARDL approach is applied for Data aalysis. The results examie that while exchage rate, iflatio rate ad fiacial idex rate have a positive sigificat effect, iterest rate has a egative sigificat o real stock prices. Keywords Stock prices, Moetary policy, Fiacial idex,, 1. Itroductio I developig coutries, ecoomic depressio due to stock market crash are more sigificat tha developed coutries. Sice there are cocers of drawdow ad ecoomic istability. Chages i the ivestmet retur risk due to fluctuatios of macroecoomic variables ca be affect the ivestmet optios. I this study, we ivestigate stock retur i Ira stock exchage with respect to macroecoomic variables of iflatio rate, exchage rate, fiacial idex ad iterest rate. 2. Review of Literature Musai et al, (2010) i a study titled The relatioship betwee stock market ad macroecoomic variables tried to ivestigate Coitegratio ad causality relatioship betwee macroecoomic variables ad total stock prices idex durig For this purpose, quarterly data related to the idex ad macroecoomic variables of moey supply, GPD ad exchage rate were used. To ivestigate short-ru ad log-ru relatioship amog the variables, they applied Egle-Grager approach, ARDL, Johase test ad the error correctio. The model is defied as follows: LLLLLL = aa + bbbbbb + cccccccccc + dddddddddddd + uu Where, LPs refers to logarithm of total stock prices idex, LM is logarithm of moey supply, LGDP is logarithm of GDP, LBMER is logarithm of exchage rate ad u is the error term. The results show that there is a log ru * Correspodig author: ecoomy_expert@yahoo.com (Maryam Zare) Published olie at Copyright 2017 Scietific & Academic Publishig. All Rights Reserved relatioship betwee the variables ad total stock prices idex. Accordig to the results, while moey supply (cetral bak's moetary policy) has the greatest impact o the stock prices chages, the effect of exchage rate ad GDP o stock exchage shows ucertaity. I additio, based o Grager approach, total stock prices idex have a isigificat effect o GDP while macroecoomic variables ca lead to growth or depressio. This coclusio shows that total stock prices idex ca t be utilized to predict GDP. Also, stock prices do ot completely follow radom walks as the efficiet market hypothesis predicts. Taheri H et al (2011), i a study titled Evaluatio of the relatioship betwee exchage rate ad Tehra stock exchage idex usig ARDL approach used ARDL model to examie log-ru relatioship betwee stock prices idex i Tehra stock exchage ad exchage rate. They also used mothly data durig The model is defied as follows: LLLLLLLLLL tt = LLLLLLLLLL tt ii qq pp =1 + ββ 1 LLLLLLLL tt + ββ 2 LLLLLLLL tt + εε tt =0 qq =0 Where LTSMI is logarithm of Tehra stock exchage idex, LCPI is logarithm of cosumer price idex, LPER is logarithm of exchage rate ad ε is the error term. It is ecessary to assess the stability of the variables before estimatio of the model. For this purpose, Augmeted Dicky-Fuller test ca be used. The results examied that there is a positive relatioship betwee stock exchage idex ad real exchage rate. The estimated coefficiet is equal to 1.5 which satisfies theoretical models. Aalyzig the direct relatioship betwee real exchage rate ad stock exchage idex shows

2 126 Maryam Zare: Factors Affectig the Log-Ru Stock Prices Performace i Ira that the related compaies cause raise i the exchage rate, the challege of exportig icreases ad as a result, icrease i the exports of goods, services ad primary icome will improve their efficiecy. I this case, as the real exchage rate icreases ad the icome improve, the demad for shares ad also, the stock exchage idex will icrease. With regard to the direct effect of exchage rate o stock exchage idex which called Thermometers of Ecoomy, the cetral bak policies eed to be cosidered substatially. Heidary H ad Bashiri S (2012), i a study titled Evaluatio of the relatioship betwee real exchage rate ucertaity ad Tehra stock exchage: Evidece from VAR-GARCH model tried to ivestigate the relatioship betwee real exchage rate fluctuatios ad Tehra stock exchage durig They used MGARCH (1, 1) - VAR (1) model to estimate coditioal mea, variace ad covariace of real exchage rate ad stock price idex variables, simultaeously. The parameter of equatio accordig to two-variable model are give as follows: LRER t = μμ 1 LTEPIX t μμ + φφ 1φφ 2 2 φφ 3 φφ LLLLLLLL tt 1 4 LLLLLLLLLLLL tt 1 + ρρ 1 ρρ 2 ρρ 3 ρρ 4 σσ 11 σσ 22 + ττ 1 ττ 2 dddd1383mm 11 + γγ 1 γγ 2 dddd1387mm 12 + εε 1 εε 2 Where LPER ad LTEPIX refer to logarithm of real exchage rate ad logarithm of stock prices idex, respectively. ε 1 Ad ε 2 are the error terms. Sice the results of structural breaks tests shows a failure i the variables, hece, complex variables used i 2004 (which stock exchage idex plummeted ad stock market bubble take place) ad 2008 (which oil reveue dropped due to global fiacial crisis). The results examie that real exchage rate ucertaity has a egative sigificat impact o price. Furthermore, accordig to the results, there is o sigificat relatioship betwee stock prices ucertaity ad real exchage rate. Sice, o oe had, real exchage rate ucertaity leads to currecy speculatio ad to liquidity trasfer ad o the other had, causes to stock compaies prices icrease, decrease i stock prices ad also depressio would be expected. Therefore, the policies which cause fluctuatios ad ucertaities must be avoided to provide market shares ad price idex growth. The complex variables used i the model, have a sigificat effect o stock price. Also, the complex variable which used i 2008 global fiacial crisis has remarkable effect o real exchage rate. Shaki S ad Tofighi H (2012), i a study titled effect of exchage rate fluctuatios o Ira Stock exchage tried to examie the relatioship betwee exchage rate fluctuatios ad Ira Stock exchage. They also defied oil price ad cosumer price idex (CPI) as the explaatory variable besides the exchage rate fluctuatios. I this research, mothly data durig March 1998-April 2008 have bee aalyzed. I order to check the time series, Augmeted Dickey Fuller test has bee used. The exchage rate fluctuatios have estimated usig the geeralized autoregressive coditioal heteroskedasticity (GARCH) process. The, the relatioship amog the variables has bee determied usig Johase test ad autoregressive distributed lag model. The model is defied as follows: RRRR = ββ 0 + ββ 1 GGGGGG + β 2 CCCCCC + ββ 3 OOOO Where, RE refers to stock market retur, GXE, OP, ad CPI are the exchage rate fluctuatios, oil price i Ira ad cosumer price idex, respectively. The results of Coitegratio aalysis iterpret that there is a short-ru relatioship amog the variables (stock market retur, exchage rate fluctuatios, oil price ad cosumer price idex) which is positive betwee stock market returs, exchage rate fluctuatios ad CPI ad the relatioship is egative betwee stock exchage retur ad oil price which is compatible with theories. I other word, it ca be cocluded that the exchage rate shocks ca chage the competitive positio of domestic producers. Icrease i exchage rate causes to domestic productios are able to compete with imported goods ad also causes to the exports which leads to icrease i atioal productio, occupatio ad domestic ad foreig ivestmets, icome of sellig currecy for govermet stock exchage growth ad etc. Also tax ad tourism reveues icrease due to maufacturig activity developmet. There is a egative correlatio betwee fluctuatios i oil prices ad stock retur. As the oil price icreases, both currecy reveue ad imports icreases. Therefore, imports of foreig goods affect the producers activity ad profit of the compaies falls due to declie i sales ad also, stock prices ad stock exchage retur. Yahyazadefar et al (2012), i a study titled The effect of oil price ad reveue shocks o stock s real retur i listed compaies of Tehra stock exchage tried to ivestigate the effect of oil price ad reveue shocks o stock s real retur. Furthermore, the effect of factors of GDP, iflatio rate, tradig volume, exchage rate ad moey supply were aalyzed. Quarterly data durig were used ad ARDL method was applied. The cases study are as follows: food, chemical, metal fabricatio, o-metal, wood ad textile idustries. The effect of ecoomic variables are evaluated as the followig model which Oil price ad oil price shock (complex variable) are used i equatio (1) ad oil reveue ad oil reveue shock (complex variable) are used i equatio (2) as oil fluctuatios idex: R i = β 0 + β 1 GDDP t + β 2 M t + β 3 POIL t + β 4 DP t +β 5 ER t + β 6 INF t + β 7 TT t + ε (1) R i = β 0 + β 1 GDP t + β 2 M t + β 3 ROIL t + β 4 DR t +β 5 ER t + β 6 INF t + β 7 TT t + ε (2) Where R ii refers to real stock retur, GDP is gross domestic product, M is moey supply (liquidity), POIL is oil price, ROIL is oil reveue, DP is oil price shock, DR is oil icome shock, ER is omial exchage rate, INF is iflatio

3 America Joural of Ecoomics 2017, 7(3): rate, TT is tradig volume ad ε is the error terms. The results showed that the effect of oil price ad reveue shocks o real returs of food, chemical ad o-metal idustries were egative ad sigificat. Furthermore, the effect of exchage rate o real returs of metioed idustries was positive ad sigificat. I additio, the effect of iflatio rate o food idustry is positive. Overall, oe of the tradig volume, cash volume ad GDP variables did t a sigificat cotributios o stock s real retur fluctuatios. I additio, there variables did t have ay effect o real returs of wood ad metal idustries. A.M. Ishfaq ad R. Rehma, A. Raoof (2010), i a study titled "Do Iterest Rate, Exchage Rate effect Stock Returs? A Pakistai Perspective examied the relatioship betwee stock retur, iterest rate ad exchage rates i Pakistai ecoomy durig A multiple regressio model is applied to test the sigificace of chage i iterest rate ad exchage o stock returs. The model is defied is as follows: SSSS = +ββ IIIIII + γγ EEEE + εε Where, SE refers to stock returs, IIIIII is chage i iterest rate, EEEE is chage i exchage rate ad εε is the error term. The sample period which have bee selected for this study is importat because i that decade we have witessed a pheomeo growth i stock market as well as very stable iterest ad exchage rate i Pakista. Chages i iterest ad exchage rate affected stock returs sigificatly. The results showed that the average stock market retur over the period of twelve years is 20%. The coefficiet of chage i exchage is 2.62 which showed a positive relatioship with stock retur. The test statistics showed that the chage i exchage rate had had a sigificat impact o stock market but i positive directio. O the other had, the chage iterest rate coefficiet is showed its egative relatioship with stock returs. Y. Li ad L. Huag, (2010) i a study titled O relatioship betwee stock retur ad exchage rate: evidece o chia tried to ivestigate the relatioship betwee RMB exchage rate ad A-share stock returs i Chia, i particular i Shaghai stock market durig The Egle-Grager Coitegratio test was performed. The uit root ad Coitegratio tests were performed before coductig the Grager causality test to measure the chages i the existece ad directios of causality. The model is defied as follows: HH t = 1 + ββ 1 H t + δ 1 S t + ε 1t =1 =1 SS t = 2 + ββ 2 S t + δ 2 H t + ε 2t =1 Where H refers to omial exchage rate, S is stock returs, ε 1t ad ε 2t are the error terms. The results suggested that there was ot a log-ru equilibrium relatioship betwee stock returs ad RMB exchage rates. However, there was strog evidece suggestig that there =1 was a short-ru ui-directioal causality relatioship from the omial exchage rate to the stock returs at 5% sigificace level. D. Harito ad B. McGowa, (2011) i a study titled Stock Prices Ad Exchage Rate Causality: The Case Of Four ASEAN Coutries tried to ivestigate the statistical relatioship betwee stock prices ad exchage rates usig Grager causality ad Johase Coitegratio tests i four ASEAN coutries (Idoesia, the Philippies, Sigapore, ad Thailad) over the period The model is defied as follows: STOCK tt = c 1 + α 11 STOCK t 1 + α 12 EXCH t 1 + β 11 STOCK t 2 + β 12 EXCH t 2 + ε 1t EEEEEEEE tt = c 2 + α 21 STOCK t 1 + α 22 EXCH t 1 + β 21 STOCK t 2 + β 22 EXCH t 2 + ε 2t Where STOCK refers to stock prices, EXCH is exchage rate, ε 1t ad ε 2t are the error terms. The results of this study, suggested that the importat role that might be played by the exchage rates ad the stock prices i the ASEAN coutries ecoomy i the log-ru. Furthermore, there was uilateral ecoomy relatioship betwee the exchage rates ad the stock prices. The bi-directioal Grager-causality betwee the exchage rates ad the stock prices i the certai coutry (Sigapore, ad Thailad) idicated that the ecoomic growth i this coutry iflueced by these variables. Also, the bi-directioal causality betwee two coutries idicated that there was bilateral ecoomy relatioship closely. P. Parsva ad H. Lea, (2011) i a study titled The aalysis of relatioship betwee stock prices ad exchage rates: Evidece from six Middle Easter fiacial markets tried to evaluate the relatio betwee stock returs ad exchage rate for six Middle Easter coutries, amely Egypt, Ira, Jorda, Kuwait, Oma, ad Saudi Arabia before ad durig the 2007 global fiacial crisis. Sample period ra from 2004 to I this study, the macroecoomic variables of iterest rate, iflatio rate ad oil price were evaluated. The model is defied as follows: lsp tt = α 0 + α 1 lex t + α 2 INF t + α 3 IR t + α 4 lop t + ε t lsp tt = α 0 + α 1 lex t + α 2 INF t + α 3 IR t + α 4 lop t + ε t Where, lsp refers to stock price. LEX is exchage rate, INF is iflatio rate, lop is oil price ad ε is the error term. The results of the study showed that there was log-ru co-movemet amog the variables, also stock prices Grager cause exchage rates ad vice versa, so there was a feedback causal relatioship betwee stock prices ad exchage rates i the atios after the crisis. Osamwoyi ad E. Osagie, (2012) i a study titled The Relatioship betwee Macroecoomic Variables ad Stock Market Idex i Nigeria attempted to determie the relatioship betwee macroecoomic variables ad the Nigeria capital market idex. It cosidered the yearly data of several macroecoomic variables of iterest rates, iflatio rates, exchage rates, fiscal deficit, GDP ad moey supply from 1975 to The model is specified i fuctioal form as follows:

4 128 Maryam Zare: Factors Affectig the Log-Ru Stock Prices Performace i Ira SSSSSS = IIII tt + 2 IIIIII tt + 3 FFFF tt + 4 EEEE tt + 5 MMMM tt + 6 GGGGGG tt + εε tt With the variables defied as follows: SMI - Stock market idex IR - iterest rate IFR - iflatio rate FD - fiscal Deficit ER - exchage rate Ms - moey supply GDP - Gross Domestic Product εε - The error term The fidigs showed that there was a egative short-ru ad log-rug relatioship betwee supply moey ad stock price. Also, the exchage rate had a positive short-ru ad egative log-ru impact stock price. I additio, fiscal Deficit had a positive effect o stock price which was isigificat. It also ca be cocluded that while there was a sigificat short-ru relatioship betwee GDP ad stock price, the relatioship betwee iterest rate ad stock price was egative ad egligible. 3. Theoretical Framework of the Study At the ed of imposed war i Ira, stock exchage s activities started more widely, i order to Public participatio. I study of the effective factors o markets or market ecoomy, fidig the variable (or variables) that ca illustrate the relatioship betwee the fiacial sector ad real ecoomy, are substatial. I this regard, we evaluate the macroecoomic variables (iflatio rate, exchage rate ad etc.) which have a sigificat effect. There are various factors which ca affect the ivestmet decisios. Furthermore, Risk tolerace ad returs are crucial factors. Fiacial market Fiacial markets are markets i which people trade fiacial assets. Fiacial assets are o-physical assets whose values are derived from a cotractual claim, such as bak deposits, bods, ad stocks. There are two types of fiacial markets: Moey market: it is a compoet of the fiacial markets for assets ivolved i short-term borrowig, ledig, buyig ad sellig with origial maturities of oe year or less. Capital Market: it is a fiacial market i which log-term debt or equity-backed securities are bought ad sold. Capital markets are defied as markets i which moey ad assets are provided for periods loger tha a year ad the oes which offered with o maturity date. It also icludes stock exchages. Tehra Stock Exchage Tehra Stock Exchage commeced the operatio o February 1967 accordig to the law approved by the parliamet o TSE activities process could be divided ito four periods: The first period ( ), the secod period ( ), the third period ( ) ad the fourth period ( ). The factors affectig o Stock exchage As we kow, there are various factors such as domestic, Psychological, political ad Ecoomic factors that ca ifluece Stock price ad returs. Log term fluctuatios ad ucertaity associated with these variables cause problems i ivestors decisios ad predictios. Iflatio ad Stock returs is oe the affectig factor o Stock returs. So far, may studies have bee performed to ivestigate the relatioship betwee iflatio ad stock returs but there is o cosesus amog researchers. ad Stock returs betwee two currecies is the rate at which oe currecy will be exchaged for aother. It is also regarded as the value of oe coutry s currecy i relatio to aother currecy. Movemets i the exchage rate will determie competitiveess i global market. There is a mutual relatioship betwee the exchage rate ad the other variables. Also, Domestic ad foreig policies ad also ecoomic developmets ca ifluece the exchage rate which is a key cocept. ad stock returs has a sigificat effects o ecoomy ad Chages i iterest rate ca affect the ivestmet. I geeral, decrease i iterest rate will provoke ivestmet ad ecoomy activities ad icrease i iterest rate will decrease the stock price ad retur. Therefore, a egative relatioship betwee the exchage rate ad stock retur could be expected. Fiacial idex ad stock retur There are differet kid of fiacial idices. Here, Domestic credit to private sector (% of GDP) has bee applied. The model ad variables The mai obective of this study is to ivestigate the effect of exchage rate, iterest rate ad fiacial idex rate o stock retur. For this purpose, the followig model is applied: Lsr= αα 0 if+ +αα 2 lrer+αα 3 rlr+αα 4 li2 + c Where, Lsr is logarithm of stock price, if is iflatio rate, Lrer is real exchage rate, Rlr is real log-ru iterest rate, ad Li2 is logarithm of fiacial idex (Domestic credit to private sector (% of GDP). Tests: Auto-Regressive Distributed Lags Model (ARDL): Pesar ad Shi (1999) have suggested the use of the traditioal Auto-Regressive distributed lags (ARDL) i order to aalyze log-ru relatioships betwee o variables. ARDL Model with a umber of P

5 America Joural of Ecoomics 2017, 7(3): lags for depedet variable (y t ) ad a umber of q lags for explaatory variables (x t ) is writte as follows: ϕ( Ly ) = α + α t+ β ( Lx ) + u t 0 1 where L is lag operator ad t is the time tred, p = 1 ϕ(l) = 1 ϕ L & β(l) = t q = 1 β L After applicatio of equal coditios of lags for each variable, log term relatioship betwee variables is obtaied as follows which ca be used to estimate log term coefficiets i the model: y = δ + δ t+ θ x + u t 0 1 t t Where δ 1 = α1 φ( L) ad θ = β ( L) φ( L) (Pesara & Shi, 1999). Whe estimatig the coefficiets usig ARDL, i the first stage, optimal p ad q lags are selected by usig Akaeik Idex or Schwarz Bayesia Idex. I the ext stage, log term coefficiets of the variables ad their critical poits are estimated via ARDL Model as used i the first stage. Structural stability test Cumulative sum test (CUSUM) ad cumulative sum of squares test (CUSUMQ): I order to examie the stability of model coefficiets, CUSUMQ ad CUSUM tests employed for a log time i the literature o ecoometrics are used. I these tests, the ull hypothesis examies the stability of parameters at a sigificace level of 5%. The cofidece iterval i these two tests is two straight lies that show a cofidece iterval of 95%. If the test statistics is betwee these two lies, it is ot possible to reect the ull hypothesis showig the stability of the coefficiets. Table 1. The results of test for all variables at level Critical value at 5% level: Table 2. The results of test for all variables at level Critical value at 5% level: Table-3 shows that the o- variables at level will be at first differece. Table 3. The results of test for all variables at first differece Critical value at 5% level: Table 4. The results of test for all variables at first differece Critical value at 5% level: Table-5 shows the overall results of test for the variables. The results demostrate that all of them are first-order except the iflatio rate. Table 5. Overall results of test Five- year iterest rate Fiacial idex The order Forasmuch as all variables are ot first-order, so Johase test caot be used i order to Coitegratio aalysis (log-ru relatioship). I this case, i order to estimate the log-ru relatioship ad the error correctio amog ivolved determiats i the model, ARDL model has bee applied. Estimatio of ARDL model Log ru estimatio I(0) Table-6 shows the results of log-ru estimatio. Table 6. The results of Log-ru estimatio (ARDL model) Variable INF LEXR 2.95 Lrer C Coefficiet t-statistic Prob

6 130 Maryam Zare: Factors Affectig the Log-Ru Stock Prices Performace i Ira Error correctio Test Table-7 shows the results of error correctio test. Variable DLSR(-1) DINF DLEXR Li2 DINT DC ECM(-1) Table 7. The results of error correctio test Coefficiet t-statistic Prob It should be oted that the coefficiet of the EC term idicates the speed of adustmet to the log-ru equilibrium path. Tables-7 clearly exhibits this coefficiet is statistically sigificat ad it has a egative sig. Because ECM has a value betwee zero ad oe ad also it is statistically sigificat, the log-ru Coitegratio relatioship betwee the variables ca be approved. The coefficiet of EC term is equal to It is evidet that ECM (-1) which is statistically sigificat has a value of ad idicates the speed of adustmet to the log-ru equilibrium path. Actually, it meas that 12% of variable o-equilibrium ca be corrected i the ext period. 4. Summary ad Coclusios This study has used ARDL techique i order to evaluatio of the short-ru ad log-ru relatioships ad error correctio. At first, Augmeted Dicky-Fuller (ADF) was applied to evaluate the time serious. The results obviously show that all variables are I (1) ad I (0). Also, it ca be coclude that Johase test caot be used for ivestigatio of Coitegratio (log-ru relatioship), because all variables are ot I (1). I this case, we ca use Autoregressive distributed lag (ARDL) ad Error Correctio test for determiatio of short-ru ad log ru relatioships. I additio, our fidigs idicate that iflatio rate ad exchage rate have a positive sigificat effect o Stock price. Fially, we ca coclude that while fiacial idex has a positive sigificat impact, iterest rate has a egative log-ru effect o Stock price. REFERENCES [1] Pirai, kh. & Shahsavar, Z. (2006). Effect of macro variables o Ira stock Exchage. Joural of Ecoomic Studies, 9, [2] Heidary H & Bashiri S (2012). Evaluatio of the relatioship betwee real exchage rate ucertaity ad Tehra stock exchage: Evidece from VAR-GARCH model. Joural of Ecoomic Studies, 9, [3] Shaki S & Tofighi H (2012). Effect of exchage rate fluctuatios o Ira Stock exchage. [4] Taheri H et al (2011). Evaluatio of the relatioship betwee exchage rate ad Tehra stock exchage idex usig ARDL approach. Joural of Ecoomic Studies, 60, [5] Musai et al, (2010). The relatioship betwee stock market ad macroecoomic variables. Joural of Ecoomic Studies, 54, [6] Mirzakhai. H & Choobie. B (2011). The positio of stock exchage i resistive ecoomy. [7] Yahyazadefar et al. (2012). The effect of oil price ad reveue shocks o stock s real retur i listed compaies of Tehra stock exchage. [8] Ishfaq A.M. Ad Rehma R,. Raoof A. (2010), "Do Iterest Rate, Exchage Rate effect Stock Returs? A Pakistai Perspective", Iteratioal Research Joural of Fiace ad Ecoomics, Issue 50. [9] Li, Y. ad Huag L., (2010), "O the Relatioship betwee stock retur ad exchage rate: evidece o Chia, College of Mathematics ad Ecoometrics, Hua Uiversity. [10] Osamwoyi, I. ad Esther Osagie, (2012), The Relatioship betwee Macroecoomic Variables ad Stock Market Idex i Nigeria, J Ecoomics, Vol.3, No.1, PP [11] Parsva, P. ad H. Lea, (2011), "The Aalysis of Relatioship betwee Stock Prices ad Exchage Rates: Evidece from Six Middle Easter Fiacial Markets", Iteratioal Research Joural of Fiace ad Ecoomics, Issue 66, PP