The Study of Volatility Spillover Effects of The Exchange Rate on Agricultural Industry Index Listed on The Stock Exchange

اقتصاد و توسعه کشاورزی

Article 8, Volume 28, Issue 2, June 2014, Pages 177-184   

Document Type: Research Article

DOI: 10.22067/jead2.v1391i7.35908

Authors

A. Dourandish^* ; E. Shariat; N. Arzande

Agricultural Economic Department, Faculty of Agriculture, Ferdowsi University of Mashhad

Abstract

Financial markets are one of the most crucial markets in every country. Stock exchange market and exchange market are the most sensitive sectors of financial market. These markets are affected by fluctuations and business cycles in the economy and they reflect economic changes to the economy. On the other hand, disturbance in one or both markets cause concerns among policy makers. Dynamic interactions between these two markets encourage policy makers and researchers to carry out some analysis considering more details. In this study, effects of volatility of exchange market and agricultural processing industries stock market on themselves and each other have been investigated by GARCH model. Weekly data between April 2006 and January of 20014 was used. The results show that the past volatility of exchange market affects the current volatility of this market. The past shock in exchange market has effects on the current volatility of this market , the current volatility of food and beverage industries as well as the sugar industry market. Also, the past shock in sugar industries market affects its current volatility and the current volatility of exchange market and food and beverages industries market. Because changes in exchange rate affect revenues and costs of the mentioned industries, preventing the exchange rate market from fluctuations and putting it in stable by making balance between demand and supply, also controlling the central bank and other regulatory agencies will prevent these two markets from fluctuations. It is, therefore, recommended that policy makers impose monetary and financial policies that reduce volatility in capital and exchange markets.

Keywords

Exchange rate market; Agricultural processing index stock exchange market; Volatility; GARCH model