Journal of Econometric Modelling

Journal of Econometric Modelling

Comparing the Impact of Global Metals Price Index on Stock Returns of Base Metals and Extraction of Metal Minerals Group: Fixed Transition Probabilities Approach of Markov Switching Method

Document Type : Original Article

Authors
Mahdi Shahrazi 1
Saman Ghaderi 2
1 Assistant Prof., Department of Management, Faculty of Humanities and Social Sciences, Golestan University, Gorgan, Iran
2 Assistant Prof., Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran
10.22075/jem.2019.18664.1370
Abstract
The purpose of this study is to compare the impact of Global Metals Price Index on the stock returns of Base Metals group and Extraction of Metal Minerals group in the Tehran Stock Exchange. In this respect, the monthly data of stock market during the period of 2009M01–2019M05 has been used by applying Markov switching model with Fixed Transition Probabilities (MS-FTP). Based on Akaike information criterion, MSIAH (2)-AR (1) and MSIH (2)-AR (1) were proposed as optimal models in metal and Extraction of Metal Minerals groups, respectively. In estimated models, the first and second regimes determine the high and low stock return. In addition, results show that in the high and low stock return regime of metal group, one percent increase in global metals price will lead to 0.477 and 0.365 percent increase in stock return, respectively. Also, results in Extraction of Metal Minerals group indicates that in the high stock return regime, one percent increase in global metals price lead to 0.535 percent increase in stock returns but is not effective in low stock return. Therefore, the change of global metals price could be having the important role in signaling of changing stock returns especially in high stock return regime.
Keywords
Global Metals Price Index
Stock Return
Base Metals Group
Extraction of Metal Minerals Group
Transition of Regimes
Fixed Transition Probabilities Approach
Markov Switching Method