Estimating Oil Price Volatility Using Stochastic Volatility (SV) and Its Impact on Corporate Investment

Firm investment is one of the important financial decisions in the economy, which affects the value of companies and the wealth of shareholders, which can result in increasing welfare. Despite neglecting the effects of uncertainty in traditional investment theories, modern theories have introduced various mechanisms for the impact of uncertainty on investment expenditures. Using the daily data of oil prices and the data of 131 companies listed on the Tehran Stock Exchange market during the period of 2008-2020, the factors affecting the investment of the companies are identified by emphasizing the oil price uncertainty. For this purpose, in the first step, the stochastic volatility model in the framework of the space-state approach is the basis for estimating the oil price uncertainty, and in the next, according to the results of the Hausman endogeneity test, the instrumental variable method is used to estimate the coefficients of the variables affecting investment. The findings indicate that first, the volatility of oil prices has no significant effect on investment. Second, firm size, profitability, inflation, and Tobin’s Q affect investment positively and significantly. Third, the financial leverage, which is reflected in the capital structure polices, has a significant negative effect on investment, meaning that more focus on debt financing leads to less corporate investment expenditures

Impact of Hypothetical Extraction of Iranian Oil and Gas Industry on Value Added of Economic Sectors Using Multiregional Input-Output Model

Oil and natural gas production is not uniformly and homogeneously distributed across all provinces of Iran, whereas a major part of oil and gas incomes is consumed in provinces that do not have any significant role in oil and gas production. Therefore, any disruption in the production of oil and gas might expose the GDP growth of all provinces at risk. In this paper, the multiregional input-output table is calculated for the year 2015. Then, the hypothetical extraction method introduced by Dietzenbacher and Lahr (2013) is employed for estimating the effect of partial and complete extraction of oil and gas production in Khuzestan and other oil-oriented regions on the value-added of 71 economic activities in each of the regions. The findings reveal that firstly, following the extraction of oil and gas production in Khuzestan, the value added of this region reduces about %32 , while the extraction of the corresponding sector in other oil-related regions will mitigate this region’s value added by %14. Secondly, the relative reduction in the value added of economic sectors and each sector’s contribution of value-added reduction in each region depend on the economic structure of the interested region. The highest share of the total value-added reduction in each region belongs to the service sector in Tehran and agriculture in other non-oil regions. It seems that diversifying energy resources as well as supplying regions, enhancing fuel consumption efficiency, and renovating the transportation system are the most important policies to have more resilience

Connectedness and Risk Spillovers in Iranian Stock Market: Using TVP-VAR in a Sectoral Analysis

This paper examines volatility transmission across 10 major sectors in Iranian stock market over the period 10/11/2009 to 10/04/2022 using time-varying parameter vector autoregressive (TVP-VAR). Our findings show that first; the total connectedness index is approximately 54 percent, indicating that volatility spillovers across the Iranian major sectors are substantial. Second; among these 10 sectors, “investment” and “base metal” act as net transmitter of risks while “medicine”, “oil product” and “cement” sectors are the greatest receivers of risk. Third; the evidence reveals the presence of lead-lag effect in the investigated network. The greatest stock market sectors play the role of volatility transmitter to other sectors, while the relatively small sectors have no risk spillovers on major sectors. This paper can provide regulatory suggestions for policymakers and risk management for investors

Modeling the Volatility of the Iranian Asset Markets Using Factor Multivariate Stochastic Volatility Model

Using the monthly data of the returns of 5 assets during 05/31/2011 to 02/28/2021, the volatilities of Iranian asset markets have been modeled in this paper. Factor multivariate stochastic volatility model in the framework of space-state approach is the basis for decomposing the asset market volatility into two components, “volatility rooted in latent factors” and “idiosyncratic volatility” and estimating time-varying covariance matrix and dynamic pair-wise correlation of time series. The findings reveal that: first, there are two latent factors. Second idiosyncratic volatilities of 3 assets, including stock, dollar and gold have increased since mid-2017, and emerges evidence of clustering behavior. Third, the volatility of inflation is explained by the hidden factors, and consequently the idiosyncratic volatility is almost smooth. Fourth, the volatility of stock return is highly correlated with the volatilities of inflation and dollar. In addition, there is a significant pairwise correlation between inflation-dollar and inflation-interest rate

A Study of Labor Force Productivity Fluctuations in Business Cycles of Iran

The subject of labor force productivity changes during business cycles has been the focus of much debate among macroeconomics, which has gained less attention among studies focusing on Iranian Economy. In the study, we have aimed at empirically examining the role that labor force productivity fluctuations play during economic cycles in the Iran using time-series data for the period of 2005Q2-2015Q1 by applying an autoregressive distributed lag (ARDL) model. In order to estimate relations, we have separated fluctuation and trend components based on Hodrick-Prescott filter. Based on our results, it is suggested that labor force productivity moves in alignment with GDP and increases in expansion periods and decreases in recession periods which indicate pro-cyclical behavior of labor force productivity in Iranian Economy. Second, in the last seasons of an expansion period, the role of labor force productivity fluctuations decreases in gross domestic product fluctuations which is along with the theory

The Effect of Information Sharing on Tax-to-GDP Ratio

In real world, taxpayers have private information of which tax agencies are either completely or partly not aware of. This issue gives rise to the so-called asymmetric information problem, seriously preventing tax laws from being justly and efficiently enforced. Asymmetry of information motivates taxpayer towards falsifying or concealing information, trying to enjoy benefits of failure to pay taxes (moral hazard); furthermore, by granting licenses to bad economic operators for operating as authorized economic operators, law-abiding companies may leave licensed and authorized market (adverse selection). It is obvious that, information sharing and availability of databases containing taxpayers’ information can help governments in recognizing and collecting taxes in a justly and fair manner. In this paper, using statistics from 92 countries during 2006 – 2012 (in the form of panel data), we have studied the effects of information sharing variables on tax-to-GDP ratio. The findings indicate that, information sharing has a positive, yet statistically insignificant, effect on the ratio, which is in agreement with theoretical foundations

Emprical Validity of Asset pricing models in Iran's Stock Market: Application of Optimal Significance Level and Equal Probability Test

One of the most usage of evaluating Empirical Validity of Asset-pricing Models is GRS test. In this paper we implement the GRS test for CAPM and Fama-French 3-factor asset pricing models with explicit consideration of statistical power, by employing the optimal significance level and equal-probability test. In this regard we use the 25 size-B/M portfolios analysed by Fama and French to facilitate the empirical comparison among the alternative models. The result show GRS test rejects all two asset pricing models at the conventional significance level.. At the optimal significance, we find that the GRS test cannot reject the null hypothesis of portfolio efficiency most of the time for CAPM and Fama-French 3-factor models

The Impact of Financial Development on Tax Evasion in Iran

The purpose of this paper is to identify factors affecting tax evasion with emphasis on financial development. For this purpose, we estimate an ARDL model for the period 1978 to 2014. Our results show that, at first, there is a long-run relationship between tax evasion and explanatory variables (financial development, literacy rate, government size and industry value added (%GDP). Secondly, financial development has a significant negative effect (in short-run and long-run) on tax evasion. In other words, higher financial development leads to lower tax evasion. This finding is consistent with the theoretical expectation. Thirdly, literacy rate, government size and industry value added (%GDP) have a significant negative effect on tax evasion. That means tax evasion is decreases by increasing each of them. Also, the variables of GDP per capita and tax complexity did not have a significant effect on tax evasion

The Impact of Oil Price Shocks on Growth and Inflation of OPEC Countries with an Emphasis on OPEC Political Risk Shocks

Considering the source of oil shocks, this study aims to investigate the effect of oil price shocks on the key macroeconomic variables of the OPEC countries. Even though oil shocks are originated by various factors, political risks are of great importance. Using structural vector-autoregressive model, we disentangled oil shocks and studied their impacts on OPEC’s GDP growth and inflation, using a Panel-VAR for 1994:1-2016:4. Our results highlight that among oil shocks, the oil price shocks stemming from the political risk of OPEC countries have the most significant impact on the OPEC's economic growth, while not having any significant impact on inflation of the countries. We also learned that oil supply shocks could also boost economic growth and increase inflation rates in OPEC countries, although these increases are not significant. Other oil price shocks will only lead to higher inflation in these countries without affecting OPEC's economic growth