aDepartment of Economics, Sanandaj Branch, Islamic Azad University, Sanandaj, Iran
bMembers of Young Researchers Club, Sanandaj Branch, Islamic Azad University, Sanandaj, Iran
cDepartment of Accounting, Sanandaj Branch, Islamic Azad University, Sanandaj, Iran
Online published on 4 December, 2014.
In this paper, strong observation of stock market return dependence on regime switching has been obtained which is based on a two regime Markov switching model. The aforesaid results demonstrate inflation rate asymmetrical impacts on stock return within its two recessions and expansion regimes. We notice that a high inflation rate decreases the probability of staying in a “low mean–low variance” regime. While, in the other regime, as inflation rate becomes increasingly high, the probability of staying in the “high return-high variance” regime increases.
Inflation, Tehran Stock Exchange, Regime Switching
