Dynamics of Oil Market Shocks, Global Aggregate Demand, and Iran’s Stock Market: A Time-Varying Parameter Structural Vector Autoregression (TVP-SVAR) Approach

Articles in Press

Document Type : Research Paper

Authors

1 دانشگاه الزهرا

2 alzahra uni

Abstract

As uncertainty in the global oil market increases due to political and economic turmoil, understanding the nature and magnitude of stock market responses becomes increasingly important. This paper examines the dynamics of structural shocks in the oil market, global aggregate demand, and Iran’s stock market. Following the approach proposed by Lutz Kilian, structural shocks—including oil supply shocks, global aggregate demand shocks, and precautionary demand shocks—are identified using a Structural Vector Autoregression (SVAR) model. The effects of these shocks on Iran’s stock market are then analyzed using a Time-Varying Parameter Vector Autoregression (TVP-VAR) framework. Monthly time-series data covering the period from December 2008 to September 2025 are employed. The results indicate that oil supply shocks exert a negative and short-term effect on Iran’s stock returns, while global aggregate demand shocks generate oscillatory responses that are mostly close to zero. Precautionary demand shocks have a negative and transitory impact on stock returns. In addition, shocks to stock returns themselves induce a positive but limited response, reflecting short-term return dependence. The magnitude and scope of these effects intensify during periods of political and economic instability, including the twelve-day war between Iran and the Israeli and the activation risk of the snapback mechanism. Overall, the findings highlight the importance of distinguishing between different types of oil shocks and accounting for the internal dynamics of the stock market to better understand market reactions and to design effective economic and investment policies.

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Main Subjects

Applied Theories of Economics

Articles in Press, Accepted Manuscript
Available Online from 07 July 2026

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