The Study of long-Term Memory in Dynamic Volatility Relationship between Stock Returns and Exchange Rates

Nowadays, the issue of how to choose an appropriate system of currency exchange can be considered as one the pivots of macroeconomic policies and, in turn, currency fluctuation turns to one of the most crucial concerns of each country’s foreign commerce. Since, stock returns in the stock market are influenced by various factors, especially the macroeconomic variables, In this study, we examined the relationship between long-term memory in the return series (March 2011until February 2015) and USD / IRR exchange rate volatility and return on equity of Tehran Stock Exchange. Applying univariate and multivariate models GARCH in the first period (2011 and 2012), we witness that there exists the long-term memory in all series of return. In addition, not only does the student-GARCH (1,1) model indicate the best conformity with the total index (2011-2015), compared to other models, but it also can estimate exchange rates for the period of 2011and 2012 with higher accuracy. It is also noticeable that there exists no significant relationship between the exchange rates and the stock market returns, in the given period.