Modeling Return Spillovers among Dollar, Gold, Euro, and Sectoral Indices of the Tehran Stock Exchange: A GARCH Family Approach
Subject Areas : Economicrahim novin 1 , Roya Alomran 2 * , seyyed ali paytakhti oskooe 3
1 - Doctoral student of the Department of Economics, Tabriz Branch, Islamic Azad University of Tabriz; Iran
2 - Department of Economics, Ta.C., Islamic Azad University, Tabriz, Iran.
3 - Associate Prof., Department of Economics, Tabriz Branch, Islamic Azad University, Tabriz, Iran
Keywords: Return spillover, Group indices, Tehran Stock Exchange, Gold, Dollar, Euro, GARCH family.,
Abstract :
In an economic environment marked by high political and financial uncertainty, optimal portfolio allocation requires a thorough understanding of return relationships and correlations among assets to minimize investment risk. In Iran, due to persistent domestic financial volatility and structural challenges, this issue is of even greater importance. This study aims to model return spillovers among gold, the US dollar, the euro, and selected group indices of the Tehran Stock Exchange (including automotive, banking, and chemical sectors) over the daily period from August 26, 2018, to March 15, 2022. For this purpose, using the Box–Jenkins approach, appropriate univariate models for each variable were first identified and selected based on information criteria. Subsequently, using the GARCH family of models (including GARCH and EGARCH with various orders), the cross return spillover effects were estimated. The results of the selected models—EGARCH(1,2) for the banking index, EGARCH(1,1) for the chemical index, GARCH(1,2) for gold, GARCH(2,2) for the euro, and AR(2) for the dollar—indicate that the magnitude and direction of spillovers differ across assets, revealing a complex pattern of positive and negative relationships among currency, gold, and stock markets. These findings can assist investors and policymakers in developing diversification strategies and risk management frameworks.
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