Investigating Impact of the Selected Domestic and Foreign Assets Returns on Stock Price Index Returns in Iran: An Approach from DCC-FIAPARCH Model

One of the features of a financial market, the stock market in particular, is its affectability from other financial and non-financial markets; on the other hand, investors always seek to create a portfolio with minimum risk while maintaining the expected return level. Therefore, perceiving the relationship between the stock returns and other assets can be helpful for investors to create an optimal portfolio. On this basis, regarding the importance of this issue, the present study aimed at investigating the dynamic conditional correlation (DCC) between the returns on the domestic and foreign assets in monthly data (oil, industry, exchange and base metals including total, copper, steel) and returns on the stock price index in Iran during March 2001 to April 2017 using the DCC-FIAPARCH approach. The obtained results indicated a statistically significant and positive DCC coefficient difference between the metals, industrial products, and copper returns with the stocks returns. Consequently, it is not possible to put each of these assets with the stocks in an identical situation (purchase or sale), but instead they should be always placed in opposite situations for the purpose of risk control. However, with regard to other assets, the DCC was not significant; accordingly, the assets can be placed in the investment portfolio together with the stocks although the presence of such assets in the given portfolio did not help to reduce the portfolio risk.