The Impact of Monetary and Financial Institutions Services Value Added on Financial Index and Total Index of Tehran Stock Market: Application of Bayesian modification based on Doan, Litterman and Sims prior in the Autoregressive Distributed Lags Model

Abstract

efficient financial institutions and markets could increase economic growth, and mutually, the financial sector should also reflect the economic indicators changes in real sector. In this study, impact of the banking, insurance and financial intermediation sector with an emphasis on value-added of financial and monetary institutions services on the capital market is examined. For this purpose, “TEPIX” and “financial index” as capital markets representative indices (the dependent variable) and Bayesian ARDL (BARDL) method based on Doan, Litterman and Sims prior and Buss (2010) is used in period of 1991-2018. The results show that monetary and financial institutions services in the short term could affect stock price index (“TEPIX” and “financial index”), therefore The short-term relationship between the banking, insurance and financial intermediation sector of economy and the financial sector (Stock Exchange market) is established but the statistical significance of this relationship in the long run is not approved and no feedback in stock price indices based on the changes in the banking, insurance and financial intermediation sector is observed. These results on one hand indicate a significant impact of monetary variables and tools such as liquidity and price inflation on the stock market, and on the other hand is a sign of weakness in the relationship between the banking, insurance and financial intermediation sector and the stock market. Therefore, it is suggested that in critical situations (with short-term targets), monetary and price tools used to adjust stock market but in contrast, by correction of structural flaws of Stock Exchange market, the context of short term and long-term impact of the banking, insurance and financial intermediation sector on stock indices will be provided.efficient financial institutions and markets could increase economic growth, and mutually, the financial sector should also reflect the economic indicators changes in real sector. In this study, impact of the banking, insurance and financial intermediation sector with an emphasis on value-added of financial and monetary institutions services on the capital market is examined. For this purpose, “TEPIX” and “financial index” as capital markets representative indices (the dependent variable) and Bayesian ARDL (BARDL) method based on Doan, Litterman and Sims prior and Buss (2010) is used in period of 1991-2018. The results show that monetary and financial institutions services in the short term could affect stock price index (“TEPIX” and “financial index”), therefore The short-term relationship between the banking, insurance and financial intermediation sector of economy and the financial sector (Stock Exchange market) is established but the statistical significance of this relationship in the long run is not approved and no feedback in stock price indices based on the changes in the banking, insurance and financial intermediation sector is observed. These results on one hand indicate a significant impact of monetary variables and tools such as liquidity and price inflation on the stock market, and on the other hand is a sign of weakness in the relationship between the banking, insurance and financial intermediation sector and the stock market. Therefore, it is suggested that in critical situations (with short-term targets), monetary and price tools used to adjust stock market but in contrast, by correction of structural flaws of Stock Exchange market, the context of short term and long-term impact of the banking, insurance and financial intermediation sector on stock indices will be provided.