Examining the Relationship between the Gold and Foreign Exchange Markets and the Stock Market in Iran: A Nonlinear Causality Approach

Document Type : Scientific paper

Authors

Faculty of Economics and Management, University of Tabriz, Tabriz, Iran

10.22080/mrl.2026.28189.2136

Abstract

One of the most important economic sectors that plays a significant role in achieving economic growth and development is the financial sector. The stock market is one of the crucial financial markets, and understanding its nature and interactions with other financial markets has attracted the attention of many researchers and economists. Accordingly, given the increasing importance of financial markets and the complexity of interactions between them, the main objective of this study is to examine the nonlinear causality relationship between the gold and foreign exchange markets with the stock market and to identify the sources of these relationships in Iran during the period from November 2011 to April 2024. To analyze the relationships between markets, this study employs the Diks-Panchenko (2006) nonlinear causality approach and the NARDL and GJR-GARCH methods. Additionally, considering the existence of two important indices in the Tehran Stock Exchange—the total index and equal-weighted index—both indices were used in this study to ensure a more precise examination of the subject and the robustness of the results. The findings of this study indicate that there is a nonlinear bidirectional causality between the stock market and both the gold and foreign exchange markets in Iran. After confirming the existence of nonlinear causality, the model was estimated using two methods: NARDL and GJR-GARCH. Based on the residuals obtained from these two models, the source of the nonlinear causal relationships was examined. According to the results, the results suggest that the source of the nonlinear causality relationship between the gold and currency markets with the stock market is not due to asymmetric cointegration but rather stems from the volatility persistence in these markets.

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History

  • Receive Date: 18 December 2024
  • Revise Date: 20 April 2025
  • Accept Date: 22 May 2025

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