Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models
We employ the Markov Regime-Switching GARCH (MRS- GARCH) family models under the normal, Student’s t-, and GED distributions to measure the uncertainty of the industry index returns (IIR) of Tehran Stock Exchange over the period of 2013–2019. The models distinguish between two different regimes in b...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2020-01-01
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| Series: | Cogent Economics & Finance |
| Subjects: | |
| Online Access: | http://dx.doi.org/10.1080/23322039.2020.1802806 |
| _version_ | 1818673190915801088 |
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| author | Mehdi Zolfaghari Saeid Hoseinzade |
| author_facet | Mehdi Zolfaghari Saeid Hoseinzade |
| author_sort | Mehdi Zolfaghari |
| collection | DOAJ |
| description | We employ the Markov Regime-Switching GARCH (MRS- GARCH) family models under the normal, Student’s t-, and GED distributions to measure the uncertainty of the industry index returns (IIR) of Tehran Stock Exchange over the period of 2013–2019. The models distinguish between two different regimes in both conditional mean and conditional variance. The results show that the MRS-EGARCH-in-mean (MRS-EGARCH-M) models under GED and Student’s t-distributions have the best performance to model the IIR volatility. We find evidence of regime-switching behaviour in Iran’s stock market. After removing the forecastable component (expected variation) from the best fitted models, we measure the time series of the IIR uncertainty (unforecastable component) and estimate the impact of exchange rate fluctuations on them using an autoregressive distributed lag (ARDL) model. We find that foreign exchange rate fluctuations have a significant and distinct impact on the IIR uncertainty across various regimes. The results show that the exchange rate generally has a negative and positive impact on the IIR uncertainty for export and import-oriented industries, respectively, under both regimes. |
| first_indexed | 2024-12-17T07:51:52Z |
| format | Article |
| id | doaj.art-a6f11668575c465c85c9f36002529fe9 |
| institution | Directory Open Access Journal |
| issn | 2332-2039 |
| language | English |
| last_indexed | 2024-12-17T07:51:52Z |
| publishDate | 2020-01-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj.art-a6f11668575c465c85c9f36002529fe92022-12-21T21:57:49ZengTaylor & Francis GroupCogent Economics & Finance2332-20392020-01-018110.1080/23322039.2020.18028061802806Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family modelsMehdi Zolfaghari0Saeid Hoseinzade1Tarbiat Modares UniversitySuffolk UniversityWe employ the Markov Regime-Switching GARCH (MRS- GARCH) family models under the normal, Student’s t-, and GED distributions to measure the uncertainty of the industry index returns (IIR) of Tehran Stock Exchange over the period of 2013–2019. The models distinguish between two different regimes in both conditional mean and conditional variance. The results show that the MRS-EGARCH-in-mean (MRS-EGARCH-M) models under GED and Student’s t-distributions have the best performance to model the IIR volatility. We find evidence of regime-switching behaviour in Iran’s stock market. After removing the forecastable component (expected variation) from the best fitted models, we measure the time series of the IIR uncertainty (unforecastable component) and estimate the impact of exchange rate fluctuations on them using an autoregressive distributed lag (ARDL) model. We find that foreign exchange rate fluctuations have a significant and distinct impact on the IIR uncertainty across various regimes. The results show that the exchange rate generally has a negative and positive impact on the IIR uncertainty for export and import-oriented industries, respectively, under both regimes.http://dx.doi.org/10.1080/23322039.2020.1802806uncertaintystock marketmarkov regime-switching |
| spellingShingle | Mehdi Zolfaghari Saeid Hoseinzade Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models Cogent Economics & Finance uncertainty stock market markov regime-switching |
| title | Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models |
| title_full | Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models |
| title_fullStr | Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models |
| title_full_unstemmed | Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models |
| title_short | Impact of exchange rate on uncertainty in stock market: Evidence from Markov regime-switching GARCH family models |
| title_sort | impact of exchange rate on uncertainty in stock market evidence from markov regime switching garch family models |
| topic | uncertainty stock market markov regime-switching |
| url | http://dx.doi.org/10.1080/23322039.2020.1802806 |
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