The Role of Economic Policy Uncertainty in Relation to Financial Market Instability and Stock Liquidity in Tehran Stock Exchange Companies

Abstract

The purpose of this article is to investigate the role of economic policy uncertainty in relation to financial market instability and stock liquidity in Tehran stock exchange companies. For this purpose, the panel threshold approach model (PSTR) was used based on the annual data of listed companies during the period of 1401-1392. Based on the obtained weights for economic policy uncertainty, the macro indicators section has the greatest effect in creating uncertainty. After that, the monetary and financial sector of the government have the most subsequent effects. Among the variables; The free exchange rate has the most influence, followed by the economic growth, inflation and monetary base and the real interest rate have the most influence on the uncertainty of the government's economic policies in Iran's economy. The estimation results of the nonlinear part of the model (second regime) show that for one percent increase in the variables of economic policy uncertainty, financial market instability, psychological biases, stock liquidity decreases by 8%, 5% and 17% respectively. Also, for one percent increase in profitability variables, asset structure, financial behavior of investors and company sales growth, stock liquidity increases by 7%, 10%, 2% and 28% respectively. In other words, the increase in the uncertainty of the economic policy leads to an increase in the amount of foreign debt by companies, and the increase in debt will lead to a lack of liquidity in general, which in general, the lack of liquidity of economic enterprises has a negative effect on the distribution of dividends, stock returns and increasing the index. They have a price, it should also be noted that with the increase in the uncertainty of the economic policy and the instability of the financial market, the possibility that the capital will leave the stock market and enter the money market will also increase. Therefore, it can be said that the increase in economic policy uncertainty and the instability of the financial market will continuously reduce the liquidity of the stock market.