Financial Economics
Masood Baghbani; GholamReza Keshavarz Haddad; Hossein Abdoh Tabrizi
Abstract
AbstractThis study examined the relationship between dividend policy (measured by dividend yield and dividend payout ratio) and stock price volatility in the Tehran Stock Exchange. Using fixed effects and random effects regression models developed by Baskin (1989) and Allen and Rachim (1996), the study ...
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AbstractThis study examined the relationship between dividend policy (measured by dividend yield and dividend payout ratio) and stock price volatility in the Tehran Stock Exchange. Using fixed effects and random effects regression models developed by Baskin (1989) and Allen and Rachim (1996), the study analyzed the data of 200 public firms listed on the TSE that consistently paid dividends from 2010 to 2020. The results indicated a significantly negative relationship between dividend policy and stock price volatility. Additionally, firm size was negatively correlated with stock price volatility, with this relationship proving statistically significant. Consequently, managers can partly control the stock risk and influence investors’ decisions through a firm’s dividend policies. Stock price volatility in emerging markets, particularly the Tehran Stock Exchange, is substantially influenced by macroeconomic fluctuations, so considering these factors notably affects the coefficient sizes.IntroductionDividend policy has long been a central focus in financial research, especially concerning its impact on stock price volatility. As a form of return to shareholders, dividend payments play a significant role in shaping investment decisions. In this respect, the present study aimed to investigate the effect of dividend policy—measured through the dividend payout ratio and dividend yield—on stock price volatility in the Tehran Stock Exchange (TSE), using the data of 200 firms over the period from 2010 to 2019. The research aimed to address the following questions: How does the dividend payout ratio affect stock price volatility in the TSE? What is the impact of dividend yield on stock price volatility in the TSE? How do seasoned offerings and macroeconomic factors influence the relationship between dividend policy (dividend payout ratio and dividend yield) and stock price volatility?Materials and MethodsThe research used a sample of 200 firms listed on the TSE from 2010 to 2020 in order to examine the effect of dividend policy on stock price volatility. Using panel regression analysis, the study evaluated the effects of the dividend payout ratio and dividend yield, with control variables such as firm size, earnings volatility, debt ratio, and growth. The data was sourced from Codal (www.codal.ir) and TSETMC (www.tsetmc.com). Stock price volatility was measured through the Parkinson estimator, which calculates volatility based on weekly high and low prices, thereby minimizing distortions from daily price limits on the exchange.Results and DiscussionThe empirical results revealed a statistically inverse relationship between dividend yield and stock price volatility, supporting the duration effect hypothesis. Higher dividend yields contribute to more stable prices, as stocks with larger dividends are less sensitive to changes in the discount rate. This finding is consistent with earlier studies by Baskin (1989), Hussainy (2011), and Mingli et al. (2016). The relationship remains robust across different model specifications. However, no significant relationship was found between the payout ratio and stock price volatility when both dividend yield and payout ratio were included, which is likely due to multicollinearity. When dividend yield was excluded, the payout ratio became significant at the 10% level, showing an inverse relationship with volatility (Table 1). Control variables such as firm size and growth significantly influenced volatility, with higher growth correlated with higher volatility. Debt levels, initially insignificant, became significant when total debt was considered. Adjusting for seasoned equity offerings reduced the effect of dividend yield on volatility but still maintained its significance. Macroeconomic volatility, measured by TEDPIX fluctuations, had the largest impact on stock price volatility, highlighting the sensitivity of TSE to Iran's unstable macroeconomic environment.Table 1. Multicollinearity of Payout Ratio and Dividend Yield, and Its Effect on Regression Results(5)(4)(3)Variable -0.094***(0.032)-0.088***(0.034)DivYield-0.0046*(0.0028) 0.0015-(0.0024)PayoutRatio0.019(0.070)0.023(0.071)0.023(0.070)EarningVol-0.015**(0.0065)-0.015***(0.0063)-0.015***(0.0061)Size0.020***(0.0070)0.021***(0.0069)0.021***(0.0070)Growth-0.035(0.053)-0.026(0.053)-0.026(0.053)DebtRatio0.650***(0.178)0.652***(0.178)0.526***(0.083)ConstantYesYesYesTime Fixed EffectYesYesYesIndustry Fixed Effect169216921801Num of Observation0.4890.5891692R2Source: Research resultsTable 1 shows the results of assessing the effect of dividend policy on stock price volatility, taking into account the multicollinearity between dividend yield and payout ratio. In Specification (3), where all explanatory variables are included, a significant negative relationship is found between dividend yield and stock price volatility, while the payout ratio remains insignificant. Specification (4), which excludes the payout ratio, shows that the dividend yield remains significantly negative. In Specification (5), when dividend yield is excluded, the payout ratio becomes significant at the 10% level, suggesting the presence of multicollinearity between the two variables. The dependent variable is stock price volatility, measured using Parkinson’s method, with the models controlling for firm size, growth, debt ratio, and fixed effects.ConclusionThis research examined the effect of dividend policy on stock price volatility in the TSE, using dividend yield and payout ratio as key indicators. A sample of 200 public firms listed that consistently paid dividends from 2010 to 2020 was selected, and a panel regression analysis was conducted to assess the effect of the indicators. The results revealed a significantly negative relationship between dividend yield and stock price volatility, while the payout ratio was not significant due to multicollinearity. However, when dividend yield was excluded, the payout ratio became significant at the 10% level, also showing a negative relationship with volatility. The findings support the duration, rate of return, and signaling effects, and are consistent with prior studies by Baskin (1989), Hussainy (2011), and Mingley et al. (2016). Among the control variables, firm size and growth were significant, and redefining the debt ratio to include total debt made it significant at the 10% level. The results from alternative specifications using net dividend yield and payout ratio were consistent, offering valuable insights for investors and managers in predicting and managing stock price volatility.
Financial Economics
Gholamhossein Golarzi; Mahnaz Khorasani
Abstract
The exchange rate, as a fundamental variable, alongside other economic variables, has a significant impact on stock returns. Therefore, this study has investigated the effects of the exchange rate and its fluctuations on the pharmaceutical industry's stock returns through linear and nonlinear models ...
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The exchange rate, as a fundamental variable, alongside other economic variables, has a significant impact on stock returns. Therefore, this study has investigated the effects of the exchange rate and its fluctuations on the pharmaceutical industry's stock returns through linear and nonlinear models during the years 2005 to 2021. In this research, first, the exchange rate fluctuations were modeled using the GARCH model. Then, the symmetrical and asymmetrical effects of the exchange rate and its fluctuations, along with the macroeconomic control variables including the healthcare consumer price index, oil price, and industry-specific control variables including asset return ratio, asset turnover ratio, and debt ratio as well as the COVID-19 dummy variable, were investigated on the return of the pharmaceutical industry stock using both linear ARDL and nonlinear NARDL models. The study shows that in both the short and long term, the impact of the exchange rate on pharmaceutical industry stock returns is greater than the impact of exchange rate fluctuations. Additionally, negative shocks of the exchange rate and its fluctuations have a negative relationship with the pharmaceutical industry's stock returns, while positive shocks of the exchange rate and its fluctuations have a positive effect on the pharmaceutical industry's stock return. The study's findings suggest that the impact of positive and negative shocks of the exchange rate and its fluctuations have asymmetric effects on the return of pharmaceutical industry stock. Results show that control variables and COVID-19 have significant effects on pharmaceutical industry stock returns in linear and nonlinear models.1.IntroductionPharmaceuticals, as a strategically vital industry, can significantly contribute to a country’s economic growth and the enhancement of public health. However, a major challenge faced by this industry in Iran is its heavy dependence on imported raw materials and essential machinery, with nearly 60% of the required raw materials being sourced through imports. The pharmaceutical sector in Iran is particularly vulnerable to exchange rate fluctuations, given its high dependency on foreign currency. Consequently, the exchange rate and its fluctuations emerge as determining factors influencing the profitability and stock returns of companies operating in this sector. Divergent perspectives exist regarding how exchange rate fluctuations impact stock returns, with some studies asserting a positive correlation, others a negative one, and some maintaining a neutral stance. Since there is no consensus on the precise nature of the relationship between exchange rate fluctuations and stock returns, especially within the pharmaceutical sector, the present research tried to investigate and compare the effects of exchange rate and its fluctuations on stock returns in the pharmaceutical industry.2.Materials and MethodsUsing linear and nonlinear autoregressive distributed lag models (i.e., ARDL and NARDL), the study examined both the symmetrical and asymmetrical effects of exchange rate fluctuations on the return of pharmaceutical industry stocks during 2005 to 2021. The research also considered macroeconomic control variables, including healthcare consumer price index, oil price, COVID–19 dummy variable, and the variables specific to the pharmaceutical industry (e.g., asset return ratios, turnover ratios, and debt ratios). First, the generalized autoregressive conditional heteroskedasticity (GARCH) model was employed to model exchange rate fluctuations. The long-term linear equation for the return of pharmaceutical industry stocks can be defined as follows:(1) Also, the long-term nonlinear equation is defined as follows:(2) 3.Results and DiscussionThe research findings reveal that, in the short-term period and based on the linear ARDL model, the exchange rate significantly affects the return of the pharmaceutical industry stocks, with exchange rate fluctuations also causing a significant negative impact on stock returns. Moreover, the analysis of the long-term coefficient estimates from the linear ARDL model suggests a positive correlation between the exchange rate and pharmaceutical industry stock returns. Consequently, the results imply that an increase in the exchange rate can boost the competitive power and stock returns of pharmaceutical companies. However, in the long run, exchange rate fluctuations can have a detrimental effect due to heightened uncertainty in the stock market, dissuading investors from engaging in this industry. Additionally, the study indicates that an increase in oil prices results in a decrease in pharmaceutical industry returns, as investors seek profits in alternative markets. Inflation, too, negatively affects pharmaceutical industry stock returns, as heightened inflation fosters uncertainty, reducing investor inclination toward pharmaceutical stocks. Furthermore, the research findings highlight that various factors such as pharmaceutical industry asset returns, asset turnover, debt levels, and the dummy variable of COVID–19 positively impact pharmaceutical industry returns.The results obtained from the nonlinear NARDL model showed that both short-term and long-term negative shocks in the exchange rate and its fluctuations significantly decrease the stock returns of the pharmaceutical industry. In contrast, positive shocks in the exchange rate and its fluctuations positively affect the stock returns of the pharmaceutical industry. Hence, it can be concluded that the exchange rate and its fluctuations have an asymmetrical effect on pharmaceutical industry stock returns in Iran. Unlike the linear ARDL model, the results of the nonlinear NARDL model indicated that inflation and debt levels do not exert significant impact on pharmaceutical industry stock returns in the long run. Additionally, impact of oil prices on pharmaceutical industry returns is significantly negative in the long run, while pharmaceutical asset returns, asset turnover, and the dummy variable of COVID–19 contribute to an increase in pharmaceutical industry returns in Iran.4.ConclusionConcerning the importance of the pharmaceutical industry and the influence of the exchange rate on the stock returns in the Iranian stock market, the present research used ARDL and NARDL models to examine both the linear and nonlinear effects of exchange rate and its fluctuations on pharmaceutical industry stock returns during 2005–2021 in Iran. The research results indicated that, in both the short and long term, the impact of exchange rate is more significant than the impact of exchange rate fluctuations on the returns of pharmaceutical industry stocks. According to the findings, negative shocks to the exchange rate and its fluctuations can lead to a decrease in the returns of pharmaceutical industry stocks, while positive shocks result in an increase. The results suggest an asymmetrical impact of positive and negative exchange rate shocks and its fluctuations on pharmaceutical industry stock returns. In both linear and nonlinear models, the control variables of the study, along with the COVID–19 as the dummy variable, have significant impact in on pharmaceutical industry stock returns. In sum, the findings indicated a significant relationship between the exchange rate and its fluctuations and pharmaceutical industry returns in Iran. However, the impact of exchange rate and its fluctuations on pharmaceutical industry proves to be heterogeneous. It is thus recommended that investors take note of the differing results of linear and nonlinear models and the asymmetric effects of variables, utilizing modern financial engineering instruments to implement appropriate risk-hedging strategies against exchange rate fluctuations.
Financial Economics
Mostafa Abdollahzadeh; Hashem Zare
Abstract
The main purpose of this paper is to calculate the entropy of money in the space of Gross domestic product with the approach of econophysics and investigating the effect of stock market development on it. In this regard, by using annual data in the period of 1370-1398 in the framework of Smooth Transition ...
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The main purpose of this paper is to calculate the entropy of money in the space of Gross domestic product with the approach of econophysics and investigating the effect of stock market development on it. In this regard, by using annual data in the period of 1370-1398 in the framework of Smooth Transition Autoregressive Model (STAR), the asymmetric behavior of monetary irregularities around a threshold at different levels of stock market value as a variable of analysis is investigated. The results show that at low levels of current value of the stock market (the first regime), net capital inventory and budget deficit of governments have positive effects and the number of companies admitted to the stock exchange organization have a negative effect on monetary entropy. At high levels of current value of the stock market (Second Regime), net capital inventory has negative effect and government budget deficit continued to have a positive effect on monetary entropy. Based on the results of this study, it is clear that the dynamics of the stock market will reduce monetary entropy, which is itself an indicator of wasting and lacking of access to the resources.
Financial Economics
Hamid Reza Arbab; Hamid Amadeh; Amin Amini
Abstract
This study investigated the factors that leads to economic uncertainty which may influence the petrochemical companies returns in various market conditions regarding their various levels of capital. To meet this object, we used quarterly data on government’s current expenditures, general government ...
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This study investigated the factors that leads to economic uncertainty which may influence the petrochemical companies returns in various market conditions regarding their various levels of capital. To meet this object, we used quarterly data on government’s current expenditures, general government revenues, liquidity, GDP, and exchange rate, as the political variables for the years 1384-1397. Considering the type of available time series, we exercised the ARIMA-GARCH model to create an indicator to show the uncertainty of economic policies. We used the result to estimate the quantile regression model, along with other factors affecting corporate returns, including the price of the OPEC oil basket and the real rate of returns and market exchange rate. The results of this study indicated that in the bearish market, the greatest negative effect of each economic policy uncertainty is on the companies with lesser capital. Moreover, the intensity of this effect decreases as the market tends to change from bearish to bullish, and finally the economic policy uncertainty will have the least impact on companies with bigger capital.
Financial Economics
Firooz Shaghaghi; Asgar Pakmaram; Younus Badavarnahandi
Abstract
Financial development is one of the main goals of economic policymakers to achieve sustainable economic growth. One of the important approaches to financial development is the expansion and deepening of the stock market. However, such expansion needs improvement of good governance, or institutional quality. ...
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Financial development is one of the main goals of economic policymakers to achieve sustainable economic growth. One of the important approaches to financial development is the expansion and deepening of the stock market. However, such expansion needs improvement of good governance, or institutional quality. Given the importance of this issue, the present study investigates the effect of institutional quality indicators (voice and accountability, political stability without violence, government effectiveness, regulatory quality, rule of law, and corruption control) on stock market variables by two Islamic countries group (10 countries) and non-Islamic countries (37 countries) during period from 2002 to 2016 using data panel method. The results showed that the institutional quality components plays an important role in the growth of stock prices relative to the growth of the average return on the whole economy as well as the increase in the volume of stock trading relative to the growth of the total turnover in both groups of countries. However, the impact of these components on the group of Islamic countries is far greater than that of non-Islamic countries. In addition, foreign direct investment, increasing real GDP at a constant price, and government final expenditure at constant price in both groups of countries have a significant impact on the growth of stock trading volumes and stock prices.