Studying the Asymmetric Impacts of Oil Price Fluctuations on Stock Market of Tehran Stock Exchange-Application of MS-EGARCH Model

In this study, an attempt is made to investigate the role of oil price fluctuations on construing the behavior of stock market returns, using the monthly data for the period 2000-2012. For this purpose, we have applied the MS.EGARCH (1,1) two regimes model. The results prima facie indicate that there is a high dependency of stock market returns on regime changes. In this context, we observe that the first regime is associated with low Variance and Mean, which illustrates the depression and the second regime is assigned with high Variance and Mean which demonstrates the boom, quid pro qua. In the first regime, oil price shock has a negative impact on stock returns, while in the second regime, the fluctuation of oil prices has significant and positive effect on the average level of stock returns, sine qua non. Thus, we conclude that, there are asymmetrical impacts of crude oil prices on the stock returns in two regimes of recession and boom, ipso facto.