Investigating the Impact of Exchange Rate Shock on the Stock Prices of Exporting and Importing Companies in Iran

Articles in Press

Document Type : Research Article

Authors

1 Department of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

2 Department of Economics, Faculty of Humanities,,Ayatollah Ozma Borujerdi University, Lorestan, Iran

10.22084/aes.2025.30408.3755

Abstract

Fluctuations in exchange rates have widespread effects on production costs, financial performance, and the international competitiveness of firms, which, in turn, influence the stock prices of both exporting and importing companies. Consequently, examining the relationship between exchange rate shocks and the stock prices of these firms is crucial for a deeper understanding of market dynamics and economic trends. This paper aims to analyze the impact of exchange rate shocks on the stock prices of exporting and importing companies in Iran. To achieve this, seasonal data spanning from 2008 to 2022 were utilized, and the analysis was conducted using the Vector Autoregressive with Exogenous Variables (VARX) model. The results of the study indicate that a one-standard-deviation positive exchange rate shock exerts a significant and positive effect on the stock prices of both exporting and importing companies. Specifically, a positive exchange rate shock enhances the competitive position of exporting companies, which, in turn, increases the volume of goods and services exported. This rise in exports contributes to higher foreign exchange revenues, and, as investors tend to value the future prospects of firms, this increase in foreign exchange earnings directly drives up the stock prices of exporting companies. Conversely, a positive exchange rate shock—marked by an increase in the free exchange rate relative to the official rate—creates a favorable environment for importing companies. These companies, which procure their goods at the official exchange rate, can capitalize on the differential between the official and free exchange rates. By offering their products at higher prices in the domestic market, they can significantly enhance their profit margins, leading to a direct increase in the stock prices of importing firms.

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Journal of Applied Economics Studies in Iran

Articles in Press, Accepted Manuscript
Available Online from 08 March 2025

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