The Impact of Inflation Fluctuations on Total Index and Industry Index of the Tehran Stock Exchange: A FIGARCH-ARDL Approach

Articles in Press

Document Type : Original Article

Authors

Zoleikha Morsali arzanagh ¹

Nasrin Mansouri ²

Farough Karimi ³

¹ Department of Economics, Karaj Branch, Islamic Azad University, Karaj, Iran

² Assistant Professor, Department of Economics, Payame Noor University, Tehran, Iran.

³ Doctorate in Accounting, Urmia, Iran

https://doi.org/10.22067/mfe.2026.98376.1673

Abstract

In recent years, inflation in Iran has exhibited severe fluctuations and a persistently increasing trend. Consequently, economic research has focused on the relationship between inflation volatility and financial markets. As one of the most important investment instruments, stocks serve the primary goals of meeting future needs and enhancing welfare through wealth accumulation. Using monthly data from April 2011 to March 2023 (Farvardin 1390 to Esfand 1402), this study investigates the effects of inflation fluctuations on the total index and the industry index of the Tehran Stock Exchange. To this end, inflation volatility is first extracted using the long-memory FIGARCH model. Then, its impact on the aforementioned indices is estimated within an autoregressive distributed lag (ARDL) framework in two separate models. The empirical findings reveal a significant negative long run relationship between inflation fluctuations and both stock market indices. Moreover, increases in the exchange rate and gold price lead to rises in the total index and the industry index, whereas an increase in the interest rate inflicts considerable damage on the stock market. Based on the results, prudent monetary policy management and control of inflationary volatility are recommended to economic authorities for improving stock market performance.

Keywords

Inflationary fluctuations

industry index

aggregate index

stock market

Subjects

• Financial monetary economy

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