Spillover between Tehran Stock Exchange and International Oil Market

Financial spillovers are commonly defined as occurrences where fluctuations in the price of an asset in one country (or region) trigger changes in the prices of the same asset or other assets in another country (or region). Our country's economy, since the discovery of oil in it; has always relied on this product. It is common among stock market participants that the price of this product fluctuates; it causes fluctuations in the stock market. The present article seeks to investigate the existence of spillover between the Tehran Stock Exchange and the oil market.

Using daily data on daily returns on the Tehran Stock Exchange index and West Texas Intermediate oil prices during the period December 5, 2008, to November 4, 2019, and the vector autoregressive model we examined spillover between the two markets. This article also examines the Granger causality test between the two markets.

After performing the augmented Dickey-Fuller test and ensuring the stationary of both time-series data; the vector autoregressive model was estimated. Length of optimal lags; With regard to the Akaike information criteria; was determined seven days. According to the results of this article, there is no spillover between the two markets and oil and the stock market are no other cause of fluctuation. In the time series returns on the index; everyday return has a significant relationship with a return of one day; two days; three days; five days and seven days ago. Oil returns have no significant relationship with their amount in any of the previous seven days except the previous day. According to the Granger causality test, the p-value (prob.) in both directions was more than 5%, and therefore the return on oil and the index are not the other cause of the Granger test. Also based on the impulse response function (IRF); the shock to the index and oil returns decays after twelve and eight days, respectively.

Contrary to what was expected; there is no spillover between the two markets. As a result, other factors are involved in changing prices and causing stock market shocks.