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How is the Iranian stock market affected by geopolitical risk and economic policy uncertainty in China, the US and the global?

Publish Year: 1404
Type: Journal paper
Language: English
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Document National Code:

JR_IJAAF-9-1_008

Index date: 17 January 2025

How is the Iranian stock market affected by geopolitical risk and economic policy uncertainty in China, the US and the global? abstract

In the contemporary global economy, the interconnectedness of national markets has become increasingly pronounced. Over the past decade, Iran has experienced an annual average import of approximately 40 billion and exports of 38 billion, highlighting emerging cross-border economic linkages. These international connections mean that domestic factors within Iran’s markets are now heavily influenced by external forces. This research investigates the impact of two types of uncertainty—geopolitical risk (GPR) and economic policy uncertainty (EPU)—originating from global, Chinese, and United States sources on the returns and volatility of the Iranian stock exchange. Monthly data from November 2008 to March 2024 were analyzed using a Generalized Additive Model (GAM). The results demonstrate that EPU from global and Chinese sources significantly nonlinearly affects the returns and volatility of the Iranian stock market. In contrast, EPU from the United States only impacts stock market volatility. GPR from China and globally has a direct linear effect on both returns and volatility. The combined effects of EPU and GPR from China and the US also significantly influence returns and volatility, while the simultaneous global effects only impact the returns of the Iranian stock exchange. The findings in the field of GPR indicate that when GPR occurs, investors in the Iranian stock market consider it a safe asset, and the occurrence of GPR serves as an incentive to enter the capital market in Iran. Conversely, the findings regarding EPU suggest that when investors perceive EPU from China, it leads to specific economic effects, prompting them to alter their portfolios. However, the recognition of EPU from the US and global sources is less pronounced among investors, leading them to prefer not to take action. These findings hold important implications for investors and stakeholders in the Iranian financial markets, providing insights that can inform investment strategies and policy decisions.

How is the Iranian stock market affected by geopolitical risk and economic policy uncertainty in China, the US and the global? Keywords:

How is the Iranian stock market affected by geopolitical risk and economic policy uncertainty in China, the US and the global? authors

Mohammad Sadegh Adibian

Ph.D. student in Economics, Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Azadi Square, Mashhad, Iran

Taghi Ebrahimi Salari

Associate Professor of Economics Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Azadi Square, Mashhad, Iran

Hadi Esmaeilpour Moghadam

Assistant Professor of Economics, Department of Economics, Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Azadi Square, Mashhad, Iran