Asymmetric Effect of Exchange Rate Risk on the Stock Index of Export-Oriented Industries Using the NARDL Model

Sarrafi Zanjani, Mohammad; Mehregan, Nader

doi:10.29252/jemr.9.33.89

Volume 9, Issue 33 (10-2018) jemr 2018, 9(33): 89-116 | Back to browse issues page

‎ 10.29252/jemr.9.33.89

‎ 20.1001.1.22286454.1397.9.33.3.7

Mendeley

Zotero

RefWorks

Sarrafi Zanjani M, Mehregan N. Asymmetric Effect of Exchange Rate Risk on the Stock Index of Export-Oriented Industries Using the NARDL Model. jemr 2018; 9 (33) :89-116
URL: http://jemr.khu.ac.ir/article-1-1623-en.html

Asymmetric Effect of Exchange Rate Risk on the Stock Index of Export-Oriented Industries Using the NARDL Model

Mohammad Sarrafi Zanjani ^*

¹, Nader Mehregan²

1- Khatam University , m.sarrafi.khatamuniversity@gmail.com
2- Bu-Ali Sina University

Abstract: (7200 Views)

Studying currency shocks impact on the stock market could be beneficial regarding to exchange rate fluctuations caused by various exchange policies in recent years. Therefore symmetrical or asymmetrical impacts of negative and positive dollar shockwaves in the market on indexes of chemical and basic metals industry are under investigation by weekly data collected since 2006 up to 2016 as these two industries have the most non-oil exports of Iran. First existence of long-term equilibrium relationship was examined by Pesaran Bound test and confirmed. Afterwards in addition to admitting asymmetric effect of positive and negative foreign exchange shocks on the indexes using WALD test, based on the results of the main model of the research which is the Nonlinear Autoregressive Distributed Lag (NARDL), effects of increasing in dollar rate on both indexes are positive and meaningful and the effect of its decreasing is meaningless. In addition the extracted coefficients indicates deeper effects of free dollar rate on the chemical index in comparison with index of the basic metals. OPEC crude oil, which is the control variable considered in this article has a direct and significant effects on both indicators on the short and long term.

Keywords: Asymmetric Impact, Dollar Rate, Chemical Industry, Basic Metals Industry, NARDL Model.

Full-Text [PDF 1143 kb] (3652 Downloads)

Type of Study: Applicable | Subject: پولی و مالی
Received: 2017/10/15 | Accepted: 2018/10/13 | Published: 2018/12/19

References

1.  - Ajayi, R.A., Mougouė, M. (1996). On the dynamic Relation Between Stock Prices and Exchange Rates. Journal of Financial Research,19, 193-207. [DOI:10.1111/j.1475-6803.1996.tb00593.x]

2.  - Apergis, N., Rezitis, A. (2001). Asymmetric Cross-market Volatility Spillovers: Evidence from daily data on equity and foreign exchange markets. The Manchester School Supplement, 69, 81-96. [DOI:10.1111/1467-9957.69.s1.5]

3.  - Asadzadeh, F. (2016). Investigating the Asymmetric Effects of Real Exchange Rate Shocks on the Iranian Stock Market. 4th National Conference of Management, Economics and Accounting.

4.  - Bahmani-Oskooee, M., Saha, S. (2016). Asymmetry Cointegration Between the Value of the Dollar and Sectoral Stock Indices in the U.S. International Review of Economics and Finance, 46, 78-86. [DOI:10.1016/j.iref.2016.08.005]

5.  - Bahmani-Oskooee, M., Saha, S. (2016). Do Exchange Rate Changes Have Symmetric or Asymmetric Effects on Stock Prices?. Global Finance Journal, 31, 57-72. [DOI:10.1016/j.gfj.2016.06.005]

6.  - Bahmani-Oskooee, M., Saha, S. (2015).On the relation between stock prices and exchange rates: A review article. Journal of Economic Studies, Vol. 42(4), 707-732. [DOI:10.1108/JES-03-2015-0043]

7.  - Bakhshani, S. (2015). Investigating the Effect of Exchange Rate Changes on Stock Prices and P/E Ratio using PLS-SEM. Fiscal and Economic Policies, 3(12), 149-164.

8.  - Barghi Oskooee, M., Motafakker azad, M., and Shahbazzadeh, K. (2012). Modeling Non-linear Effects of the Changes in Real Exchange Rate and Crude Oil Prices on Tehran Stock Exchange (The Markov Switching Approach). Journal of Modeling Economic Research, 4 (14), 85-109.

9.  - Bartram, S. M. (2004). Linear and Non-linear Foreign Exchange Rate Exposures of German Non-financial Corporations. Journal of International Money and Finance, 23(4), 673-699. [DOI:10.1016/j.jimonfin.2004.03.002]

10.  - Bayat, M. (2005). The effect of exchange rate changes on stock returns of different industries in Iran. Master's Thesis. Faculty of Social Science & Economics, Alzahra University.

11.  - Boonyanam, N. (2014). Relationship of Stock Price and Monetary Variables of Asian Small Open Emerging Economy: Evidence from Thailand. International Journal of Financial Research, 5(1), 52-63. [DOI:10.5430/ijfr.v5n1p52]

12.  - Branson, W.H. (1983). Macroeconomic Determinants of Real Exchange Risk, , in R.J Herring (ed.), Managing Foreign Exchange Risk, Cambridge University Press.

13.  - Cheah, S ., Yiew, T., and F. Ng. (2017). A Non-linear ARDL Analysis on the Relation Between Stock Price and Exchange Rate in Malaysia. Economics Bulletin, 37(1), 336-346.

14.  - Cuestas, J. C., Tang B. (2015). Asymmetric Exchange Rate Exposure of Stock Returns: Empirical evidence from Chinese industries. Sheffield economic research paper series, 21(4), 1-21. [DOI:10.1515/snde-2016-0042]

15.  - Dickey, D.A., Fuller, W.A. )1979(. Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74, 427-431. [DOI:10.1080/01621459.1979.10482531]

16.  - Dornbusch, R., Fischer, S. (1980). Exchange Rates and Current Account. The American Economic Review, 70(5), 960-71.

17.  - Frankel, J.A. (1983). Monetary and Portfolio-balance Models of Exchange Rate Determination. Economic Interdependence and Flexible Exchange Rates, 84-114.

18.  - Gavin, M. (1989). The Stock Market and Exchange Rate Dynamics. Journal of International Money and Finance, 8(2), 181-200. [DOI:10.1016/0261-5606(89)90022-3]

19.  - Ghavidel doostkooi, S., Rostami omran, M. (2016). Investigating the Effect of Oil Shocks on the Shares Value of Petrochemical and Refinery industries in Tehran Stock Exchange, First International Conference of Management, Accounting, Educational Sciences and Resistance Economics.

20.  - Golkhandan, A. (2016). Impact of Positive and Negative Oil Shocks on the Stock Price Index in Iran (Is This Impact Asymmetric?). Fiscal and Economic Policies, 4(15), 89-114.

21.  - Heidari, H,. Bashiri S. (2012). Investigating the Relationship Between Real Exchange Rate Uncertainty and Stock Price Index in Tehran Stock Exchange Using VAR-GARCH Models. Journal of Modeling Economic Research, 3(9), 71-93.

22.  - Ismail, M.T., Isa, Z.B. (2009). Modeling the Interactions of Stock Price and Exchange Rate in Malaysia. The Singapore Economic Review, 54(5), 605-619. [DOI:10.1142/S0217590809003471]

23.  - Koutmos, G., Martin, A. D. (2003). Asymmetric Exchange Rate Exposure: Theory and evidence. Journal of International Money and Finance, 22(3), 365-383. [DOI:10.1016/S0261-5606(03)00012-3]

24.  - Levi, Maurice, D. (1994). Exchange Rate and Valuation of Firms. in Y. Amihud and R.M. Levich, (ed.), Exchange Rate and Corporate Performance, New York.

25.  - Lukman, R., Kouser, R. (2018). Asymmetrical Linkages Between Foreign Exchange Rate and Stock Markets: Empirical evidence through Linear and Non-linear ARDL. Risk and Financial Management, 11(3), 1-13, August. [DOI:10.3390/jrfm11030051]

26.  - Mehregan, N., Ahmadi Ghomi, M. A. (2016). Exchange Rate Shocks and Financial Markets: An Application of Panel Vector Autoregression Model (Panel VAR). Journal of Economic Research and Policies, 23(75), 103-130.

27.  - Miller, K. D., Reuer, J. J. (1998). Asymmetric Corporate Exposures to Foreign Exchange Rate Changes. Strategic Management Journal, 19(12), 1183-1191. https://doi.org/10.1002/(SICI)1097-0266(1998120)19:12<1183::AID-SMJ1>3.0.CO;2-S [DOI:10.1002/(SICI)1097-0266(1998120)19:123.0.CO;2-S]

28.  - Mishra A.K., Swain, N., and Malhotra, D.K. (2007). Volatility Spillover Between Stock and Foreign Exchange Markets: Indian evidence. International Journal of Business, 12(3), 343-359.

29.  Monjazeb, M., Mustafapour, M. ( 2013). An Investigation on the Effects of Mehr Housing on the Housing Harket of Iran. Strategic and macro policies, 1(3), 1-15.

30.  Moore, T., Wang, P. (2014). Dynamic Linkage Between Real Exchange Rate and Stock Prices: Evidence from developed and emerging Asian markets. International Review of Economics and Finance, 29, 1-11. [DOI:10.1016/j.iref.2013.02.004]

31.  Najafi, A., Rahimzadeh, A. (2016). Exchange Rate Fluctuations and its Effect on Stock Returns of Companies Accepted in Tehran Stock Exchange, First International Management Conference of Economics, Accounting and Educational Sciences.

32.  Nieh, C. C., Lee, C. F. (2001). Dynamic Relationship Between Stock Prices and Exchange Rates for G-7 Countries. The Quarterly Review of Economics and Finance,41(4), 477-490. [DOI:10.1016/S1062-9769(01)00085-0]

33.  Pesaran, M. H., Shin, Y., and Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289-326. [DOI:10.1002/jae.616]

34.  Pesaran, H.M. Pesaran, B. (1997). Microfit 4. Oxford University Press, England.

35.  Pesaran, H.M., Shin, Y. (1998). An Autoregressive Distributed Lag Modeling Approach to Cointegration Analysis. Cambridge University Press, Cambridge, 371-413. [DOI:10.1017/CBO9781139052221.011]

36.  Phylaktis, K., Ravazzolo, F. (2005). Stock Prices and Exchange Rate Dynamics. Journal of International Money and Finance, 24(7), 1031-1053. [DOI:10.1016/j.jimonfin.2005.08.001]

37.  Shin, Y., Yu, B., and Greenwood-Nimmo, M. )2014(. Modelling Asymmetric Cointegration and Dynamic Multipliers in a Non-linear ARDL Framework Festschrift in Honor of Peter Schmidt. Springer, New York, 281-314. [DOI:10.1007/978-1-4899-8008-3_9]

38.  Tehrani, R., Darikande, A., Navabi zand, K., Aryan, A., and Hosseini, H. (2013). Investigating the Relationship Between Exchange Rate Fluctuations and Stock Returns Exporting Companies Accepted in Tehran Stock Exchange. Financial Knowledge of Securities Analysis (financial studies), 6(17), 87-101.

39.  Tian, G.G., Ma, S. (2010). The relationship Between Stock Returns and the Foreign Exchange Rate: the ARDL approach. Journal of the Asia Pacific Economy, 15, 490-508. [DOI:10.1080/13547860.2010.516171]

40.  Verma, P. (2016). The Impact of Exchange Rates and Interest Rates on Bank Stock Returns: Evidence from US banks. Studies in Business and Economics, 11(1), 124-139. [DOI:10.1515/sbe-2016-0011]

41.  Wu, Y. (2000). Stock Prices and Exchange Rates in a VEC Model: The Case of Singapore. Journal of Economics and Finance, 260-274. [DOI:10.1007/BF02752607]

42.  Yau, H. Y., Nieh, C. C. (2006). Interrelationships Among Stock Prices of Taiwan and Japan and NTD/Yen Exchange Rate. Journal of Asian Economics, 17, 535-552. [DOI:10.1016/j.asieco.2006.04.006]