An Evaluation of Macro-Fundamental Variables and Political Risk on the Fluctuations of Returns of the Tehran Stock Exchange

Enayatollahi, Sina; Askarzadeh, Gholamreza; Khajeh, Hamid; Abtahi, Yahya

An Evaluation of Macro-Fundamental Variables and Political Risk on the Fluctuations of Returns of the Tehran Stock Exchange

Document Type : Original Article

Authors

¹ Ph.D. Candidate, Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran.

² Assistant Professor, Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran.

Abstract

The liability of capital markets towards fluctuations, combined with investor and policy-makers’ need to identify risk factors has motivated empirical and theoretical researchers to devote a significant portion of the literature on capital markets to the study of the abovementioned issue. This article examines the underlying factors affecting fluctuations in Iran's capital markets, particularly focusing on macro-fundamental variables and political risk factors. For this purpose, the study focused on the March 2018 to September 2022 time period. The variables considered in this study included; the fluctuations of the Tehran Exchange Dividend Price Index (TEDPIX) as the dependent variable, and independent variables included gross domestic product, liquidity, inflation, interest rate, nominal exchange rate and the political risk index extracted from the International Country Risk Guide (ICRG). The methodology used for this purpose relied on autoregressive distributed lags, and to obtain fluctuations, the study utilized the model of generalized autoregressive conditional heteroscedasticity.
The results obtained indicated that in the long run, the ICRG country risk variable (a higher index number indicates a lower associated risk), and the nominal exchange rate have a negative relationship with the fluctuations of the Iranian capital market. The effect of other variables used in the model on the fluctuations of Tehran Stock Exchange was found to be positive. The results showed the lack of coordination of long-term and short-term effects, constituting an exigency that requires attention from policymakers and investors when making decisions.

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