The Effect of Inflation Rate on Real Stock Return in Iran Economy Print

In this research, 5 variables were selected; oil price volatility, exchange rate, inflation rate and oil price as independent variables and real stock return as dependent variable. Used data is quarterly that covered the period 1990:Q1 to 2006:Q4 in Iran. Result of the unit root test showed that first of difference in all variables is stationary, [I(1)]. After that, for measuring oil price volatility, Autoregressive Conditional Heteroskedasticity method was used. After estimating ARIMA model, finally, GARCH (1, 1) was given. In the next part, Vector Auto Regressive model was estimated and optimum lag was determined. In following, Johansen Cointegration test was used for determining number of long run relationship between variables. In this test, Trace and Maximum Eigenvalue was confirmed a long run relationship between model variables. When the result was accepted, Vector Error Correction model was estimated. Overall, result of this model (VECM) showed that oil price volatility and real stock return had directly relationship in short run. There was the same result; oil price variable had positive long run effect on real stock return. According to result of this research, we found that exchange rate and inflation rate had negative long run relationship with real stock return.