Testing the arbitrage pricing theory on the Tehran stock exchange

The equilibrium-pricing model using Arbitrage Pricing Theory (APT) has become one of the central models of modern financial theory. However, the APT is too general in determining the factors which influences expected returns. Many empirical studies on the APT have already been conducted in free ent...

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Main Author:	Sabetfar, Pooyar
Format:	Thesis
Language:	English
Published:	2011
Subjects:	Arbitrage - Econometric models Stock exchanges - Iran Islam - Economic aspects - Iran
Online Access:	http://psasir.upm.edu.my/id/eprint/39660/2/FEP%202011%2019R.pdf
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id	my-upm-ir.39660
record_format	uketd_dc
spelling	my-upm-ir.396602015-07-28T07:32:21Z Testing the arbitrage pricing theory on the Tehran stock exchange 2011-07 Sabetfar, Pooyar The equilibrium-pricing model using Arbitrage Pricing Theory (APT) has become one of the central models of modern financial theory. However, the APT is too general in determining the factors which influences expected returns. Many empirical studies on the APT have already been conducted in free enterprise systems but, no attention has been given in full Sharia compliant close economy. Since there was no previous research on the study of APT in full Sharia compliant sanction economy, an empirical support for the APT by employing macroeconomic variables in Tehran Stock Exchange (TSE) which works in full Sharia compliant sanction economy was examined as the main objective of the research. However, this study identifies the macroeconomic variables that may have significant high impact on the stock market returns in the arbitrage pricing relationship. Also, this research aims to see whether economical and financial sanctions adversely affect stock market returns. This study undertakes to identify the number of common factors, priced factors and the macroeconomic variables that significantly affect on TSE by employing factor analysis with principal component method from 1991-2008. Canonical Correlation Analysis (CCA) is also used to see effect of macroeconomic variables on stock returns in TSE. In this study, all the procedure is done by using individual security and grouping according to different size of portfolios separately. The evidence points to at least one factor to three factors that explain the cross-section of expected returns in TSE from 1991-2008. Financial and economical sanctions are affecting stock market returns and the negative sign of coefficients show the opposite reaction of investors to the announcement of sanctions in TSE. The principal component analysis results suggest that there are four groups of macroeconomic variables in the test period that affect stock returns. According to CCA results in the samples, the sources of systematic risk in the period are export of the crude oil and interest rate proxy in TSE. The results show the validly but, weak applicability of APT to estimate expected returns of the securities in full Sharia closed economy. Nevertheless, the macroeconomic variables that influence stock market returns change over time in Iranian context. This probably is a typical aspect of sanctioned market. The results also recommend the dissimilar strategies are needed to invest successfully in Iran because it is more sensitive to sanctions and different macroeconomic variables. Arbitrage - Econometric models Stock exchanges - Iran Islam - Economic aspects - Iran 2011-07 Thesis http://psasir.upm.edu.my/id/eprint/39660/ http://psasir.upm.edu.my/id/eprint/39660/2/FEP%202011%2019R.pdf application/pdf en public phd doctoral Universiti Putra Malaysia Arbitrage - Econometric models Stock exchanges - Iran Islam - Economic aspects - Iran
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English
topic	Arbitrage - Econometric models Stock exchanges - Iran Islam - Economic aspects - Iran
spellingShingle	Arbitrage - Econometric models Stock exchanges - Iran Islam - Economic aspects - Iran Sabetfar, Pooyar Testing the arbitrage pricing theory on the Tehran stock exchange
description	The equilibrium-pricing model using Arbitrage Pricing Theory (APT) has become one of the central models of modern financial theory. However, the APT is too general in determining the factors which influences expected returns. Many empirical studies on the APT have already been conducted in free enterprise systems but, no attention has been given in full Sharia compliant close economy. Since there was no previous research on the study of APT in full Sharia compliant sanction economy, an empirical support for the APT by employing macroeconomic variables in Tehran Stock Exchange (TSE) which works in full Sharia compliant sanction economy was examined as the main objective of the research. However, this study identifies the macroeconomic variables that may have significant high impact on the stock market returns in the arbitrage pricing relationship. Also, this research aims to see whether economical and financial sanctions adversely affect stock market returns. This study undertakes to identify the number of common factors, priced factors and the macroeconomic variables that significantly affect on TSE by employing factor analysis with principal component method from 1991-2008. Canonical Correlation Analysis (CCA) is also used to see effect of macroeconomic variables on stock returns in TSE. In this study, all the procedure is done by using individual security and grouping according to different size of portfolios separately. The evidence points to at least one factor to three factors that explain the cross-section of expected returns in TSE from 1991-2008. Financial and economical sanctions are affecting stock market returns and the negative sign of coefficients show the opposite reaction of investors to the announcement of sanctions in TSE. The principal component analysis results suggest that there are four groups of macroeconomic variables in the test period that affect stock returns. According to CCA results in the samples, the sources of systematic risk in the period are export of the crude oil and interest rate proxy in TSE. The results show the validly but, weak applicability of APT to estimate expected returns of the securities in full Sharia closed economy. Nevertheless, the macroeconomic variables that influence stock market returns change over time in Iranian context. This probably is a typical aspect of sanctioned market. The results also recommend the dissimilar strategies are needed to invest successfully in Iran because it is more sensitive to sanctions and different macroeconomic variables.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Sabetfar, Pooyar
author_facet	Sabetfar, Pooyar
author_sort	Sabetfar, Pooyar
title	Testing the arbitrage pricing theory on the Tehran stock exchange
title_short	Testing the arbitrage pricing theory on the Tehran stock exchange
title_full	Testing the arbitrage pricing theory on the Tehran stock exchange
title_fullStr	Testing the arbitrage pricing theory on the Tehran stock exchange
title_full_unstemmed	Testing the arbitrage pricing theory on the Tehran stock exchange
title_sort	testing the arbitrage pricing theory on the tehran stock exchange
granting_institution	Universiti Putra Malaysia
publishDate	2011
url	http://psasir.upm.edu.my/id/eprint/39660/2/FEP%202011%2019R.pdf
_version_	1747811803074658304

Testing the arbitrage pricing theory on the Tehran stock exchange

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