Stock market interactions among Iran, USA, Turkey, and UAE

Abstract

Due to advanced and progressive satellite digital communications not only economic but social and cultural changes from one country effects on other countries. These in turn affect not only the mean but also on variances of variables regarding the sizes of correlations and partial correlations between the internal and external variables. Therefore, information about the direction and intensity of the influences of the shock and volatility of financial markets on each other is important for investment, policy makers and financial markets planners. In this study, a multivariate GARCH model is estimated using weekly stock index data from December 15 2008 to April 10, 2017 in order to examine the interactions among Iran, United States, Turkey and the United Arab Emirate. The results indicate strong and significant within country effects of ARCH and GARCH. Due to the relatively very large size of the US economy, no effects have been observed from any other country on US stock market. There is bi-directional volatility effect between the Turkey stock market and the stock market of the UAE. Also, the volatility of the Iran stock market unidirectional affects to the stock market in Turkey and the United Arab Emirates, due to the regional and the economic interactions. Most of the eigenvalues of the matrix of the ARCH and GARCH effects are close to one, which shows a low degree of relative stability. The volatility spillover index of Diebold and Yilmaz (2012) indicates that interactions among these markets have been relatively significant.