The Time-Scale Interactions between Stock Price and Exchange Rate Volatility in Tehran Stock Exchange

Abstract

The purpose of this study was to investigate the relationship between Tehran stock exchange price index and exchange rate changes using the time-scale approach. This study using discrete wavelet transform and continuous wavelet transform tries to investigate the correlation and coherence of different scales and frequencies of two variables. Accordingly, the monthly data of free market exchange rate and the stock return for the period 1997q11 to 2017q3 were collected and then two variables were decomposed using discrete and continuous wavelet transform to different scales, and finally correlation and partial wavelet coherence were studied. The results show that there is a negative relationship between two variables in long-run from 2004 to 2016 with inflation as a control variable. According to the results of this study, in the long term, exchange rate is a leading variable for stock price at recent years.

Keywords

• Stock Price
• Exchange Rate
• Wavelet Correlation
• Partial Wavelet Coherency