The effect of economic policy uncertainty on the risk of falling stock prices (Case study: companies listed on the Tehran Stock Exchange)

Document Type : Original Article

Authors

Master of Accounting, Allameh Mohaddes Nouri University, Mazandaran, Iran

Abstract

This article examines the effect of economic policy uncertainty on the risk of stock price falls in companies listed on the Tehran Stock Exchange. To measure the uncertainty of economic policy, indicators of economic growth and exchange rates have been used, and to measure the variable risk of stock price falls, two methods of high and low fluctuations and negative skewness of monthly stock returns have been applied. This research is empirical and descriptive-correlation. in order to analyse the data and extract the research results, Excel, stata14 and Eviwse10 software were used and 123 companies were selected as sample to test the hypotheses during the period 2013-2018. The results show that economic growth has no significant relationship with positive and negative fluctuations, the foreign exchange rate has a positive and significant relationship with high and low fluctuations. On the other hand, economic growth has a positive and significant relationship with negative stock returns and foreign exchange rate has a negative and significant relationship with negative skewness stock returns. Also, the results in the present study show that the coefficient of state ownership in economic growth does not have a significant relationship with high and low fluctuations. The coefficient of state ownership in the exchange rate has a negative and significant relationship with high and low fluctuations.

Keywords

Main Subjects


Alqahtani, A., & Martinez, M. (2020). US Economic Policy Uncertainty and GCC Stock Market. Asia-Pacific Financial Markets, 1-11.‏
Basher, S. A., Haug, A. A., & Sadorsky, P. (2019). The impact of economic policy uncertainty and commodity prices on CARB country stock market volatility.
Sheng, X., Gupta, R., & Ji, Q. (2020). The Impacts of Structural Oil Shocks on Macroeconomic Uncertainty: Evidence from a Large Panel of 55 Countries (No. 202024).‏
Xiong, X., Bian, Y., & Shen, D. (2018). The time-varying correlation between policy uncertainty and stock returns: Evidence from China. Physica A: Statistical Mechanics and its Applications, 499, 413-419.
Yu, H., Fang, L., & Sun, W. (2018). Forecasting performance of global economic policy uncertainty for volatility of Chinese stock market. Physica A: Statistical Mechanics and its Applications, 505, 931-940.
Fang, L., Chen, B., Yu, H., & Qian, Y. (2018). The importance of global economic policy uncertainty in predicting gold futures market volatility: A GARCH‐MIDAS approach. Journal of Futures Markets, 38(3), 413-422.
Brogaard, J., and A. Detzel, (2015). The asset-pricing implications of government economic policy uncertainty, Management Science, 61, 3–18.
Chen, J., H. Hong, and J. C. Stein, (2001). Forecasting crashes: trading volume, past returns, and conditional skewness in stock prices, Journal of Financial Economics, 61, 345–381.
Chen, J., F. Jiang, and G. Tong, (2017). Economic policy uncertainty in China and stock market expected returns, Accounting and Finance, 57, 1265–1286.
Habib, A., M. M. Hasan, and H. Jiang, (2018). Stock price crash risk: review of the empirical literature, Accounting and Finance, 58, 211–251.
Jiao, J., and A. Yan, (2015). Convertible securities and heterogeneity of investor beliefs, Journal of Financial Research, 38, 255–282.
Kim, J. B., Y. Li, and L. Zhang, (2011a). Corporate tax avoidance and stock price crash risk: firm-level analysis, Journal of Financial Economics, 100, 639–662.
Li, X. M., 2017, New evidence on economic policy uncertainty and equity premium, Pacific-Basin Finance Journal, 46, 41–56.
Li, X., S. S. Wang, and X. Wang, (2017). Trust and stock price crash risk: evidence from China, Journal of Banking and Finance, 76, 74–91.
Liu, L., and T. Zhang, (2015). Economic policy uncertainty and stock market volatility, Finance Research Letters, 15, 99–105.
P_astor, L’., and P. Veronesi, (2012). Uncertainty about government policy and stock prices, The Journal of Finance, 67, 1219–1264.
P_astor, L’., and P. Veronesi, (2013). Political uncertainty and risk premia, Journal of Financial Economics, 110, 520–545.
Volume 3, Issue 1
March 2020
Pages 26-45
  • Receive Date: 27 December 2019
  • Revise Date: 18 January 2020
  • Accept Date: 12 February 2020