Comparing the Volatility Spillovers among Financial Markets in Iran pre and post JCPOA: A VAR-BEKK-GARCH Approach

Authors

Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.

Abstract

Volatility spillovers among financial markets suggests some sort of information transmission between these markets. The present article uses VAR-BEKK-GARCH approach to investigate volatility spillovers among financial markets in Iran, including stock, foreign exchange and gold markets pre and post JCPOA. To compare volatility spillover among financial markets, the data analyzed were associated with two periods, one pre-JCPOA, i.e. 25 March 2009 to 13 July 2015, and the other post-JCPOA, i.e. 15 July 2015 to 18 July 2018. Moreover, the impulse-response functions were calculated by including the asymmetric volatility spillover of error terms in MGARCH-type equations. Comparing the results obtained from estimating the model confirmed two-way volatility spillover between gold and stock markets in both of the periods, two-way volatility spillover between foreign exchange and stock markets, one-way volatility spillover from gold to foreign exchange markets  in the per-JCPOA period, two-way spillover between foreign exchange and gold markets and one-way spillover from stock to foreign exchange markets in the post-JCPOA period. In addition, the effect of volatility spillover from stock to foreign exchange markets was negative in the per-JCPOA period and positive in the post-JCPOA period, and volatility spillovers between financial markets significantly decreased in post JCPOA period. The results of impulse-response functions also confirmed a reduction in the transmission of uncertainty among financial markets in Iran in the post-JCPOA period.
 

Keywords