The dynamic correlation of global economic policy uncertainty index with stock, exchange rate and gold markets in Iran: Application of M-GARRCH and DCC approach

Abstract

In this study, the effect of global economic policy uncertainty on stock, gold and foreign exchange market volatility in Iran is examined. Therefore, using the monthly data of Tehran Stock Exchange price index, gold coin price and exchange rate for the period from April 2002 to March 2017, correlation of the mentioned variables with global economic policy uncertainty in Iran has been investigated by the dynamic conditional correlation-GARCH model (DCC-GARCH). The research results show that fluctuations in global economic policy have a significant effect on stock, gold coin and exchange rate market fluctuations. This index generally has a positive effect on the fluctuations of gold coin price (except during 2004-2007), and has both positive and negative effect on stock and exchange market fluctuations. Thus, the global economic uncertainty index is useful in predicting market volatility and can improve stock price, gold price and exchange rate forecasts.

Keywords

• global economic policy uncertainty
• dynamic conditional correlation model
• stock market
• gold price market
• foreign exchange market