Dynamic Relationships between Oil Prices, Gold Prices and Exchange Rates with Indicators of Tehran Stock Exchange

The oil industry has always had a financial role in the Iranian economy and oil price fluctuations are the biggest source of economic disruptions in the country. The capital market is one important part of the economy that can be affected by these fluctuations. Therefore, this paper we use the DCC-MGARCH model to examine the dynamic conditional correlation between oil prices, gold prices and exchange rate of the Rial with the Tehran Stock Exchange index over the period from March 2001 to March 2017. We use the MGARCH method to calculate conditional variances. Dynamic conditional correlation between variables are calculated using the DCC-MGARCH dynamic conditional correlation. The results confirm the existence of conditional correlation between oil prices, gold prices and exchange rate of the Rial with the Tehran Stock Exchange Index. The dynamic conditional correlation between the Tehran Stock Exchange Index and the exchange rate fluctuated between 0 and 0.001 (very low) until mid 2003, when it went up to between 0 and 0.005. This relationship continues to fluctuate and after initially reverting back to its original level, has became more intense since mid-2008 and fluctuates between zero and 0.006. The dynamic conditional correlation between the Tehran Stock Exchange Index and the gold price has followed a trend similar to that of the exchange rate, indicating a high correlation between the exchange rate and the gold price. The correlation between the Tehran stock exchange index and oil price averages 0.5, and demonstrates substantial volatility.