International Journal of Nonlinear Analysis and Applications

Effects of money volume (liquidity) and inflation rates on capital market development: A mathematical approach

Document Type : Research Paper

Authors

1 Department of Economics, Kerman Branch, Islamic Azad University, Kerman, Iran

2 Department of Economics, Shahid Bahonar University of Kerman, Kerman, Iran

Abstract

The capital market is considered a subset of financial markets so the long-term financial resources required by manufacturing companies are provided from this part of the financial system. Therefore, the purpose of this study is to investigate the money supply (liquidity) and inflation rate as components of measuring macroeconomic variables on the development of the Iranian capital market with emphasis on the liberalization of justice stocks. Also, we have tried to study the relationship between macroeconomic variables (inflation and liquidity) with capital market development in the years 1384 to 1399 with quarterly data. The method used in this research is the co-integration method and error correction models and implicit reaction functions and analysis of variance. The hypotheses of this study have also been tested using the Distributed Interrupt Autoregression (ARDL) model. Research findings indicate that economic variables such as inflation, liquidity, exchange rates, etc. are stimulus and effective in changes in stock prices has been accepted as a theory. One of the characteristics of developed countries is the existence of efficient markets and financial institutions that, while playing an important role in the economy of these countries, are also the basis for the economic growth and development of these countries. Tehran Stock Exchange, as one of the main pillars of the capital market in the country, is able to accelerate the movement towards growth and development while equipping and pouring stagnant savings in the country and directing them towards production.

Keywords

[1] R. Aleemran and S.A. Aleemran, Impressibility of stock market from erratic growth of liquidity, J. Securities Exchange 6 (1392), no. 22, 5–24.
[2] W. Anders, Applied econometric time series 2nd ed, Wiley Series in Probability and Statistics, 2004.
[3] M. Azimi, F. Karimi and M. Norouzi, Analysis of the effective factors of Tehran stock market price index using the collective method, Quart. Financ. Account. 2 (1389), no. 5, 76–93.
[4] T. Caporale and C. Jung, Inflation and real stock prices, Appl. Financ. Econ. 7 (1997), no. 3, 265–266.
[5] A. Chatrath, S. Ramchander and F. Song, Stock prices, inflation and output: evidence from India, Appl. Financ. Econ. 7 (1997), no. 4, 439–445.
[6] M. Ebrahimi, Macroeconomic forces and capital market integration a VAR analysis for Malaysia, J. Asia Pacific Econ. 8 (2003), no. 1, 19–40.
[7] M. Ebrahimi, Investigating the impact of macroeconomic variables on the Iranian stock market using data mining algorithms, Financ. Anal. J. 49 (1398), 283–309.
[8] M.S. Feldstein, Inflation, tax rules, and investment: Some econometric evidence, National Bureau of Economic Research Cambridge, Mass., USA, 1980.
[9] Ø. Gjerde and F. Saettem, Causal relations among stock returns and macroeconomic variables in a small, open economy, J. Int. Financ. Markets, Institut. Money 9 (1999), no. 1, 61–74.
[10] E. Graham, Global corporations and national governments, Columbia University Press, 1996.
[11] S.M. Hashemi Dehnavi, The effect of oil price and gold price on the total price index of the Iranian stock exchange using vector error correction model (VECM), Financ. Econ. Polic. 1 (1392), no. 3, 117–138.
[12] M.H. Liu and K.M. Shrestha, Analysis of the long-term relationship between macro-economic variables and the Chinese stock market using heteroscedastic cointegration, Manag. Finance 34 (2008), 744–755.
[13] R.C. Maysami, L.C. Howe and M.A. Hamzah, Relationship between macroeconomic variables and stock market indices: Cointegration evidence from stock exchange of Singapore’s All-S sector indices, J. Pengurusan 24 (2004), no. 1, 47–77.
[14] F. Modigliani and R. Cohn, Inflation, rational valuation, and the market, Financ. Anal. J. 35 (1979), 24–44.
[15] M. Musai, N. Mehregan and H. Amiri, Stock market and macroeconomic variables: A case study for Iran 18 (1389), no. 54, 73–94.
[16] S.D. Muhammad, A. Hussain, A. Ali and M.A. Jalil, Impact of macroeconomics variables on stock prices: Empirical evidence in case of KSE, 2009, http://dx.doi.org/10.2139/ssrn.1683357
[17] T.K. Mukherjee and A. Naka, Dynamic relations between macroeconomic variables and the Japanese stock market: An application of a vector error correction model, J. Financ. Res. 18 (1995), no. 2, 223–237.
[18] M. Poitras, The impact of macroeconomic announcements on stock prices: in search of state dependence, Southern Econ. J. 70, (2004), no. 3, 549–565.
[19] N. Sohail and Z. Hussain, Long-run and short-run relationship between macroeconomic variables and stock prices in Pakistan: The case of Lahore Stock Exchange, Pakistan Econ. Soc. Rev. 47 (2009), no. 2, 183–198.
International Journal of Nonlinear Analysis and Applications
Volume 14, Issue 1
January 2023
Pages 2809-2820
  • Receive Date: 03 January 2022
  • Revise Date: 14 February 2022
  • Accept Date: 09 March 2022