Investigating the Response of Firm’s Value to Interest Rate Shock in Selected Industries of Tehran Stock Market: TVP-FAVAR Approach

The stock market and interest rate are the main factors to access economic growth in any country. The effects of interest rate on stock market provide feedback for economic policy makers in monitoring policies, risk management methods, valuation of securities, and state policies in financial markets. According to importance of this subject, in this research, we studied the response of active firms’ value in different industries of Tehran Stock Market to interest rate shocks using time varying parameter method with augmented vector autoregressive factors (TVP-FAVAR) and seasonal data during 2011-2018. The results show the dynamic effects of interest rate on firms’ value in selected industries and different mechanism of interest rate effects due to institutional factors of active firms in any industry. This result indicates the importance applying the possibility of changes in parameters of model. Base on the results obtained, the effects of changes in interest rate over time is different and it is not possible to declare absolutely on positive or negative effect of interest rate on firms’ value, because of interest rate is a variable that has close relationship with macro variables, which causes by influencing other macro variables, it’s effects on stock market and specially on performance of active firms in this market has been fluctuated and be accompanied by different responses over time.