Oil Price Pass‐Through and Stock Market Dynamics in an Oil- Exporting Economy: Results from a Quantile Regression for Iran

Document Type : Research Paper

Authors

1 Department of Public Economics Affairs, Faculty of Economics, Kharazmi University of Tehran, Tehran, Iran.

2 Department of Energy Economics & Resources, Faculty of Economics, Kharazmi University of Tehran, Tehran, Iran.

Abstract

Linkages between oil prices and macroeconomic variables are widely studied in economics while there is some debate regarding oil price pass-through (OPP-T) and its impact on the stock market in oil- rich countries. OPP-T refers to the extent to which a change in oil prices affects the prices of other goods and services in the economy. the relationship between the two markets can be both positive and negative, and the magnitude of their correlation is dependent on various economic factors. In This study, the direct and indirect OPP-T effects of oil price on the stock market are empirically analyzed for Iran as a major oil-exporting economy, during March 2001 to February 2019. The quantile regression (QR) model is used because this model is extremely effective to recognize the distribution pattern form of the dependent variable at different levels of the independent variable. The results show that there is a positive and significant relationship between OPP-T and stock market returns. Moreover, the results indicate OPP-T directly on the stock market, as well as indirectly through the exchange rate channel. in higher quantities, i.e., when the stock market is booming, the change of crude oil price returns on the stock market, passes only through an indirect path (through the exchange rate channel) while, the decline in the crude oil price (or crude oil revenues), strengthens the stock market index by increasing the exchange rate. Additionally, the paper highlights the importance of understanding the oil market dynamics and policy implications for stock market participants, policymakers, and investors. Stock market traders in oil-exporting countries are advised to take into account the risk that arises from the fluctuations in crude oil and foreign exchange markets to the stock market.

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References

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Iranian Economic Review
Volume 29, Issue 3 - Serial Number 3
September 2025
Pages 1068-1097

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