Examining the Relationship between Economic Variables and Financial Performance of the Companies in Tehran Stock Exchange

Ali Akbar Nazari,Mohammad Taher Ahmadi Shadmehri

doi:10.5539/ibr.v9n7p188

Ali Akbar Nazari, Mohammad Taher Ahmadi Shadmehri

Open Access

https://doi.org/10.5539/ibr.v9n7p188

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Abstract

<p>This study aims to identify long-term financial performance of the companies in Tehran Stock Exchange and some economic variables like inflation rate, liquidity growth rate, exchange rate, and oil income. In this study, data was analyzed in a quarterly form from 2005-2013 using self-regression with distributional lags. Results of co-integration test showed a long-term correlation between economic variables and growth rate of cash return index. The long-term correlation between growth rate of cash return index and oil return and exchange rate was negative while the correlation between growth rate of cash return index and inflation rate was positive.<em> </em>Also, the significance of cash growth rate coefficient was rejected at 90% significance level.</p>

Highlights

In studying the behavior of effective factors in the market and market economics, searching for the variables that can explain the correlation of financial section of the economics with the real section of economics is of great importance
Kwon and Shin (1999) used Engle-Granger co-integration and the Granger-causality tests by the model of vector error correction model, finding that Stock Exchange of Korea is co-integrated with economic variables like production index, foreign exchange rate, business equilibrium, and money supply
This study examined the relationship of microeconomic variables like inflation rate, exchange rate, cash growth rate, oil return, growth rate of cash stock return index

Summary

Introduction

In studying the behavior of effective factors in the market and market economics, searching for the variables that can explain the correlation of financial section of the economics with the real section of economics is of great importance. Mayasmai and Koh (2000) used monthly data in the frame of time series and multivariate co-integration analysis of Johansen in vector error correction model, examining the long-term relationship of stock market index of Singapore and a collection of microeconomic variables They found that changes in two variables of real economic activities and industrial productions and business exchanges with changes in stock market index of Singapore are not co-integrated. Cheung and Ng (1998) examined co-integration test of Johanson for the quarterly data of Canada, Germany, Italy, Japan, and America They found a long term co-movement between national stock index and some economic variables like real oil price, real consumption, real money supply, and real GDP in these five countries. The correlation of stock price index and money volume is positive while its correlation with foreign exchange rate, interest rate, and inflation rate is negative

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