Effects of Foreign Exchange Governance on Stock Price, Liquidity and Profitability of Iran Stock Market

Document Type : Original Article

Authors

1 payame noor university

2 Allameh Tabataba'i University

3 Payame Noor University

4 Monetary and Banking Research Institute (MBRI)

Abstract

Typically, the Iran economy is sensitive to exchange rate changes and different markets are affected by it. However, not all markets and all activities are equally affected by it. The market as a whole also reacts to exchange rate changes, but the type and intensity of the market reaction is not uniform. Examining positive or negative exchange rate changes on stock markets can provide better results because the market reaction to this difference may be different. In addition to examining the relationship between exchange rate changes and price, liquidity, and stock returns of the Iran Stock Market, the present study has evaluated the impact of positive and negative changes of exchange rate on price, liquidity, and stock returns. The results of using ARDL and NARDL methods show that exchange rate changes, whether in symmetric or asymmetric cases, have a significant effect on stock prices, returns, and liquidity, and this effects are more and stable in the longe-term. Therefore, policymakers and market actors should consider these relationships and design policies that control exchange rate fluctuations and prevent negative effects on the capital market.

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