threshold regression methods

Economical growth and development require having vast and efficient financial markets, which from an economical perspective, are divided into two parts: money and capital markets. The exchange market is the main principle of a capital market. In investigating the function and efficiency of the exchange market, the price index of the stock shows the status of the stock market. In general, the factors affecting the stock price index of companies could be divided into two categories: macroeconomic and microeconomic variables. This research zeroes in on the macroeconomic factors that affect the stock price index. The present study will, first, introduce the variables that affect the stock price index, and then, examines any nonlinear relationship between the exchange rate and Tehran Stock Exchange Index from 1991 to 2020 in Iran. In this regard, information was collected from the Statistical Center of Iran (SCI) and economic reports of the Central Bank of Iran and Hansen’s Threshold Regression Technique (1996 and 2003) was utilized. The results of the Threshold Model show a nonlinear and significant relationship between the exchange rate and Tehran Stock Exchange Index, in such a way that the threshold exchange rate is estimated at 12068.071 Tomans. It means, therefore, when the exchange rate drops under the estimated threshold, this variable (because the foreign currency will also be attractive for investors in such a situation) will have a more positive and significant effect, compared to when the exchange rate is over the estimated threshold.