Document Type : Research Paper
PhD. in Financial Managment, Allameh Tabataba'i university
Associate Professor of Economics, Imam Sadiq University
The exchange rate volatility as an important factor will affect the behaviour of supply and demand of financial markets participants. The importance of the spillover explanation between the two markets comes from managed floating exchange rate system in Iran and the large portion of the foreign currency-dependent industries in the capital market. This paper examines the dynamic conditional correlation and volatility spillover of the exchange rate on the capital market using three multivariate GARCH models in a 12-year period ending in 2016. The purpose of this study is to explain the effect of shocks and the spillover of the currency market on the Iranian capital market. This could play an important role in investors' decisions, fundamental analysts and also sovereign institutions. The results confirm the existence of negative short-term and positive long-term sustainability of exchange rate shocks on capital market returns. Also, the asymmetric and positive volatility spillover to the Iranian capital market was confirmed.