The Effect of Monetary and Financial Instability on Energy-Intensive Industries Stocks

Document Type : Original Article

Authors

1 Master of Energy Economics, Faculty of Business and Economics, Persian Gulf University, Bushehr, Iran.

2 Assistant Prof, Department of Economics, Faculty of Business and Economics, Persian Gulf University, Bushehr, Iran

3 Assistant Prof, Department of Economics, Faculty of Business and Economics, Persian Gulf University, Bushehr, Iran.

Abstract

Capital markets are created with the goal of allocating and equipping resources, and one of the most important tasks of these markets is to provide liquidity. A minimum of liquidity is essential for the survival of the capital market.  Given that liquidity is considered a type of risk for financial assets and in recent decades has been considered by many economists, so the study of monetary and fiscal policy shocks and their effect on liquidity is important. It is a significant step in orienting the capital market. In this study, using the Structural vector autoregressive (SVAR) model, the impact of monetary and financial instabilities on the liquidity of energy industry stocks has been investigated. The data used are 43 companies active in the energy industry on the stock exchange for 2008  to 2018. The results indicate that monetary and financial instability have a negative impact on the liquidity of energy-intensive industries.

Keywords

References

1.Afonso, A., & Sousa, R. M. (2012). The macroeconomic effects of fiscal policy. Applied Economics, 44(34), 4439-4454.
2.Agarwal, P. (2009). Institutional ownership, liquidity and liquidity risk.
3.Akinkuotu, O.K. 2013. Comparative Impact of Fiscal and Monetary Shocks on Stock Market Performance in Nigeria, a post field report presented at the African Economic Research Consortium (AERC) bi-annual conference in Nairobi, Kenya.
4.Akbari, Z., Zarrin, J., & Yaghobi, M. (2017). The effect of liquidity risk on stock returns in listed companies in Tehran stock exchange. Scinzer Journal of Humanities, 3(2), 66-73.
5.Alamran, R. Alamran, S. A. (2013). Stock market effectiveness as a result of irregular growth of liquidity volume. Journal Stock Exchange, (6)22, 5-24. (in Persian).
6.Amihud, Y. (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of financial markets, 5(1), 31-56.
7.Amihud, Y and Mendelson, H (1986). “Asset pricing and the bid-ask spread”, Journal of Financial and Economics, 17, 223–249.
8.Asghari, Ebrahim, Abbasian Fereydooni, Naseer Mousavi, & Seyed Hossein. (2020). The effect of investors' emotional tendencies on stock market liquidity. Accounting Advances, 12(1), 1-27. (in Persian).
9.Bishak, M. Barghi Oskouhi, M.& Lak, S. (2015). The impact of monetary and fiscal policy shocks on the Iranian stock market. Journal of Economic Modeling Research, 22. (in Persian).
‏10.Blanchard, O. J. (1981). Output, the stock market, and interest rates. American Economic Review, 71(1), 132-143.
11.Boivin, J., Kiley, M. T., & Mishkin, F. S. (2010). How has the monetary transmission mechanism evolved over time? In Handbook of monetary economics (Vol. 3, pp. 369-422). Elsevier.
12.Brockman, P., & Chung, D. Y. (2000). An empirical investigation of trading on asymmetric information and heterogeneous prior beliefs. Journal of Empirical Finance, 7(5), 417-454.
‏13.Brunnermeier, M. K., & Pedersen, L. H. (2009). Market liquidity and funding liquidity. The review of financial studies, 22(6), 2201-2238.
14.Chatziantoniou, I., Duffy, D., & Filis, G. (2013). Stock market response to monetary and fiscal policy shocks: Multi-country evidence. Economic Modelling, 30, 754-769.
15.Chordia, T., Roll, R., & Subrahmanyam, A. (2000). Commonality in liquidity. Journal of financial economics, 56(1), 3-28.
16.Chung, K. H., Elder, J., & Kim, J. C. (2010). Corporate governance and liquidity. Journal of Financial and Quantitative Analysis, 45(2), 265-291.
17.Daryabari, Mohammad Javad. (2016). The Effect of Uncertainty of Monetary and Fiscal Policies on Stock Market. Thesis. Department of Industrial Engineering. Kooshyar Institute of Higher Education (non-profit-non-governmental). (in Persian)
18.Deng, S. J., & Oren, S. S. (2006). Electricity derivatives and risk management. Energy, 31(6-7), 940-953.
19.Ebrahimi, Mohsen, and Shokri, Nooshin. (2015). Comparison of self-confidence intervals in ani reaction functions and its application in Iranian monetary system. Journal of Economics. No. 3 & 4, May& July 2015. Pages 24-5. (in Persian).
20.Ebrahimi, S. Frangi, E. (2016). Factors affecting stock liquidity with emphasis on monetary and fiscal policies. Journal of Economic Research and Policies, (24)77,7-36. (in Persian).
21.Ebrahimi, M. Shokri, N. (2011). The effect of macroeconomic variables on stock prices with emphasis on the role of monetary policy. Journal of Economic Modeling, 1, 23-45. (in Persian).
22.Haji Moradkhani, Hadiseh, and Ahmadi, Reyhaneh. (2017). A review of internal researches conducted in the field of liquidity of companies' stocks and the orientation of future researches. 1st International & 3rd National Conference on Management research and humanities. University of Tehran. (in Persian).
23.Hameed, A., Kang, W., Viswanathan, S., (2010). Stock market declines and liquidity. Journal of Finance, 65, 257–293.
24.Holden, C., (2009). New low-frequency liquidity measures. Working Paper, Indiana University.
25.Hoseinian, Golara. (2017). Effects of oil price shocks and monetary shocks on stock market in Iran (1991-2014). MSc Thesis. Department of Economics, Faculty of Administrative and Economic Sciences. Ferdowsi University of Mashhad. (in Persian).
26.Hosseini, S. A. Karami, G, & Shafiepour, M. (2010). Investigating the Relationship between Corporate Performance and Stock Market Liquidity. Journal Stock Exchange, (3)11, 25-42. (in Persian).
27.Huang, R. D., & Stoll, H. R. (1996). Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE. Journal of Financial economics, 41(3), 313-357.
28.Just, M., & Echaust, K. (2020). Stock market returns, volatility, correlation and liquidity during the COVID-19 crisis: Evidence from the Markov switching approach. Finance Research Letters, 37, 101775. ‏
29.Kang, M., Wang, W., & Eom, C. (2017). Corporate investment and stock liquidity: Evidence on the price impact of trade. Review of Financial Economics, 33, 1-11.
30.Kazemi Zaroomi, H., Jafari Samimi, A., & Karimi Potanlar, S. (2020). The Effect of Inflation Targeting on Indirect Tax Performance in Selected Countries Using Propensity Score Matching Model. International Journal of Business and Development Studies, 12(1), 5-19. ‏
31.Kiarash, Sahar. (2016). The Effect of Energy Carriers Price on Stock Price Index of Different Industries in Tehran Stock Exchange. MSc Thesis in Financial Engineering Management. Faculty of Administrative Sciences and Economics. Shahid Ashrafi Esfahani University. (in Persian).
32.Klomp, J. & J. Dehaan (2009), "Central Bank Independence and Financial Instability", Journal of Financial Stability, Vol. 5, PP. 321-338.
33.Krylova, E. (2002). The credit channel of monetary policy: Case of Austria (No. 111). Reihe Ökonomie/Economics Series, Institut für Höhere Studien (IHS). ‏‏
34.Lak, Soda. (2014). The Impact of Monetary and Fiscal Policy Shocks on the Iranian Stock Market. To obtain a master's degree in economics, majoring in economics. Department of Economics. School of Management Economics and Business. Tabriz University. (in Persian).
35.Laopodis, N. T. (2009). Fiscal policy and stock market efficiency: Evidence for the United States. The quarterly Review of Economics and finance, 49(2), 633-650.
36.Lesmond, D., Ogden, J., Trzcinka, C. (1999). A new estimate of transaction costs. Review of Financial Studies, 12, 1113-1141.
37.Liew, V. K. S. (2004). Which lag length selection criteria should we employ? Economics bulletin, 3(33), 1-9.
38.Majedi, Ali, and Golriz, Hassan. (1993). Money and Banking: From Theory to Policy Making. Iran Banking Publications. (in Persian).
39.Mehrabian, A. (2004). Stock market sensitivity to financial and monetary volatility. Economic Journal. (in Persian).
40..Mishkin, F.S. (2001). The Transmission Mechanism and the Role of Asset Prices in Monetary Policy. Journal of Macroeconomics, 30, 1756–1791.
41.Mohammadi, Parisa. (2015). The effect of macroeconomic variables inevitability on bank Mellat profitability. Dissertation for M.A. in Business-Finance. Department of Business Administration. Faculty of Management. Islamic Azad University, Tehran Branch. (in Persian).
42.Mohammadpour Siddiq, Mina. (2014). Investigating the Relationship between Monetary Policies of the Central Bank and Stock Market Liquidity in the Tehran Stock Exchange. Thesis for obtaining a master's degree in economics majoring in economics. Department of Economics. School of Management Economics and Business. Tabriz University. (in Persian).
43.Mousavinia, Seyed Morteza. (2015). The effect of trading on stock line to liquidity of stocks of listed companies in Tehran Stock Exchange. MSc Thesis. Faculty of Literature and Humanities. University of Guilan. (in Persian).
44.Nguyen, T. G. (2020). Stock liquidity and dividend policy: Evidence from an imputation tax environment. International Review of Financial Analysis, 72, 101559. ‏
45.Nili, M. (2010). Assessing the Consequences of Reforming the Energy Subsidy System. Tehran: Peghan Andisheh (under supervision of Tehran Chamber of Commerce, Industries and Mines Education and Publication). (in Persian).
46.Pahlavan Yazdanabad, Hadi (1393). Assessing the Impact of Monetary and Financial Shocks on the Tehran Stock Exchange. Master Thesis in Economics. Faculty of Management and Economics. Tarbiat Modares University. (in Persian).
47.Pirai, K. Shahsavar, M. (2009). The effect of macroeconomic variables on the Iranian stock market. Journal of Economic Research, (1), 21-38. (in Persian).
48.Rezaei Gholamreza, Shahrestani Hamid, Hozhaber Kiani Kambiz, Mehrara Mohsen. (2019). The Effect of Monetary Policy on Stock Market Returns and Irregularities (Comparison between Monetary Policy Instruments in Iran. Quarterly Journal of Economic Modeling Research/ No., 36Th Summer 2019. (in Persian).
49.Roll, R. (1984). A simple implicit measure of the effective bid‐ask spread in an efficient market. Journal of finance, 39(4), 1127-1139.
50.Rostami, Mohammad Reza and Karroubi, Somayeh (2014). Investigating the relationship between stock market liquidity, business cycles and economic growth. Empirical accounting research. third year. No. 11. Pages 201-215. (in Persian).
51.Saeedi, A. Dadar, U. (2010). Investigating the Relationship between Stock Liquidity and Earlier Period Liquidity Index in Tehran Stock Exchange. Journal of Management Studies, (6)16, 75-97. (in Persian).
52.Safari, Yadullah (2010). Monetary and fiscal policies. Iranian Journal of Scientific Articles. (in Persian).
53.Shah, A. (1984). Crowding out, capital accumulation, the stock market, and money-financed fiscal policy. Journal of money, credit and banking, 16(4), 461-473.
54.Shahbazi, Kiomars, and Kalantari, Zahra. (2012). The Effect of Monetary and Fiscal Policy Shocks on Housing Market Variables in Iran: SVAR Approach. Journal of Economic Research and Policies. 20th year. Number 61. Pages 104-77. (in Persian).
55.Sklavos, K., Dam, L., & Scholtens, B. (2013). The liquidity of energy stocks. Energy Economics, 38, 168-175.
56.Smales, L. A. (2019). Slopes, spreads, and depth: Monetary policy announcements and liquidity provision in the energy futures market. International Review of Economics & Finance, 59, 234-252.
57.Sotoudehnia, Salman, Abedi, Fariba. (2013). The Effect of Monetary and Fiscal Policies on Financial Consolidation of Iran. Quarterly Journal of Strategic and Macro Policies. Number three. Year one. Pages 115-103. (in Persian).
58.Taghipour, Anoushirvan, and Noferesti, Mohammad. (1999). Evaluation of Monetary Policy Objectives in Iran. Journal of Economic Research and Policies. Seventh year. Number one. Pages 39-50. (in Persian).
59.Taghizadeh, H. (2017). The Mechanization of Monetary Policy Transfer in Different Sectors of Economics. Ph.D. Thesis in Economics. International Economics. University of Sistan Baluchestan. (in Persian).
60.Tavakoli, Turquoise, Negin, - Karimi. (2015). The effect of exchange rate fluctuations on economic growth and inflation rate of Iran, 1961-2009. Two quarterly scientific-specialized research development and planning economics, 4(1), 1-36. (in Persian).
61.Tehrani, Reza and Tabrizi, Hossein Abdo and Jafari Seresht, Davood (2011). Evaluating the effect of public offering of shares of state-owned companies on stock liquidity in Tehran Stock Exchange. Journal of Financial Research, No. 31. pp. 23 to 40. (in Persian).
62.Tharyverdi, & Khanlari. The effect of stock liquidity on holding company cash. Accounting and Management Outlook, 2(20), 114-127. (in Persian).
63.Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of money, credit and banking, 1(1), 15-29.
64.Zamani, S. Foghani Kondari, P. (2016). Calculation of Liquidity of Tehran Stock Exchange and Investigating Factors Affecting it. Journal of Financial managemet Perspective, 6(15),61-80. (in Persian).
65.Zomorodian, G. Shaabzadeh, M. Najafi Shariatzadeh, I (2015). Investigating the Impact of Iranian Capital Market on Monetary and Financial Policy Uncertainty. Engineering and Securities Management, 25. (in Persian).

Files

Share

How to cite

Statistics