Study and Comparison of Monetary and Financial Shocks to Exchange Stock Return 

Abstract

The purpose of the extant study was to examine the effects of monetary and financial shocks on stock return in Iran's economy for the 1983-2016 period using the Autoregression method. This was applied research in terms of objective and a descriptive study in terms of method. Liquidity and government expenditure was selected as monetary and financial shocks, and research was conducted for the time interval of 1983-2016. Data analysis was done through the SVAR method and Eviews software. In this case, the return stock index was used as a representation of return stock. The results obtained from Granger causality indicated a strong relationship between government expenditure in production and the stock return index. Moreover, the sock of this variable had a negative effect on the stock exchange index, explaining 70% of the long-run variance in prediction error of this index. In addition to the Granger causality between liquidity and return stock exchange, the effect of this variable on the stock return index was positive and significant for 13 years. Accordingly, liquidity explained 51% of the prediction error variance of the efficiency index within the long term. There was also a Granger causality between inflation and return stock exchange, and the effect of its shock on the efficiency index was negative and significant for five periods explaining 46% of the long-run prediction error variance of the efficiency index.