The Impact of Macroeconomic Variables on Stock Prices: The Case of Tehran Stock Exchange

This paper examines the effects of selected macroeconomic variables on the stock market index in Iran. Using quarterly data, we examine the relationships between the Tehran Stock Index (TSI) and five macroeconomic variables which consist of gross domestic product, nominal effective exchange rate, money supply, gold coin price and investment in housing sector from 1996:1 to 2008:1.Various econometric analyses such as Co-integration and Vector Error Correction Method (VECM) are employed on time series data. It finds that Iran’s stock market index is positively influenced by the growth rate of the GDP, the money supply and negatively affected by the gold prices, the private sector investment in housing sector and the nominal effective exchange rate.