Abstract
The primary purpose of this study is twofold: Firstly, using the Markov Regime Switching model throughout December 2008 to February 2020, it investigates and compares the nonlinear impacts of exchange rate movements and monetary policies on Petroleum Stock Index, PSI, in Iran. Accordingly, some control variables, such as OPEC oil price, inflation rate, and international sanctions, have also been used to model these relationships more accurately. Secondly, it is an empirical attempt to trace the historical changes in the PSI behavior through distinguishing the precise regime numbers, and the relationships between the exogenous variables and the PSI. Our results confirm that the effects of both exchange rate movements and monetary policies on the petroleum stock market return are direct and significant. More interestingly, the more we move from regime one to regime three, the greater the effects of the research variables on the index, except for the impact of OPEC oil prices. Our empirical findings further suggest as the effects of sanctions intensify, the influences of monetary policy and exchange rate movements would have a more significant impact on the petroleum stock index returns.
Highlights
The essential goal of this article is an empirical analysis of the dynamic relationship between exchange rate movements and monetary policies with petroleum stock index, PSI, in Iran
The primary purposes of this investigation are comparing the effects of exchange rate movements and monetary policies on the petroleum industry stock index in the Tehran Stock Exchange (TSE)
It is examined by Markov Regime Switching model in the period from December 2008 to February 2020 together with considering OPEC oil price, inflation rate, and international sanctions as the control variables
Summary
The essential goal of this article is an empirical analysis of the dynamic relationship between exchange rate movements and monetary policies with petroleum stock index, PSI, in Iran. The importance of this issue can be understood by reviewing the stylized facts and status quo of both this industry and Iran economy. Based on Article 44 of the Iranian Constitution, the shares of almost all of the active petroleum companies are listed on the Tehran Stock Exchange (TSE) (Khosrowzadeh et al, 2020). Studying the effects of various essential factors on its fluctuations seems reasonable for assorted groups of people
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