Investigating the Impact of Oil Price and Exchange Rate Uncertainty on Stock Return using Whitening Linear Transformation and Vector Autoregressive Model

This study is aimed at investigating the impact of oil price and exchange rate uncertainty on stock returns in Tehran Securities Exchange (TSE). To this end, "oil price uncertainty" and "exchange rate uncertainty" were considered as independent variables and "return on stocks" as the dependent variable. The daily data on the price of heavy oil, the official exchange rate and TEPIX (Tehran Exchange Price Index) are used from 1 January 2002 to 31 December 2012.Due to the nature of time-series data and the type of the study, to evaluate the impact of oil price and exchange rate uncertainty on stock returns, the uncertainty was measured using Whitening Linear Transformation method and was estimated using the Vector Auto Regressive model.The results of the estimations of the model and the uncertainty obtained from the Whitening Linear Transformation method showed that there has been a significant relation between the uncertainty of oil price and stock returns and another between the uncertainty of exchange rate and stock returns. Thus, the hypothesis of this study were confirmed by the error level of 0/05.