Problem statement:In spite of significant development in Iran stock market as a emerging stock market, there has been not specific research on the causality between the stock prices and economic growth. This study represented a systematic investigation of the relationship between stock market performance and economic growth in Iran by conducting causality tests within the Vector Error Correction Model (VECM) framework. Approach: To achieve this objective unit root tests are fulfilled for all time series data in their levels and their first differences. Johansen co-integration analysis is used to investigate whether the variables are co-integrated of the same order taking into account the maximum eigenvalues and trace statistics tests. A vector error correction model is applied to examine the long-run relationship between stock market performance and economic growth. Finally, Granger causality test is applied in order to find the direction of causality between the examined variables of the estimated model. Results: Findings imply the causality link between economic growth and stock price fluctuations in the long run, as well as bilateral causality running between share prices and economic growth in the short run. Conclusion: Therefore, it can be inferred that the level of real economic activity is the main factor in the movement of stock prices in the long run and stock market plays a role as a leading economic indicator of future economic growth in Iran in the short run.

In view of the mixed empirical results in the literature, this paper assesses the extent of asymmetric volatility effects in the Iranian stock market as an emerging stock market, using a variety of nonlinear autoregressive conditional heteroskedasticity specifications. Tests based on standardized residuals from a fitted GARCH model suggest a lack of asymmetric effects in the dynamic volatility of the Iranian stock market. Empirical analyses with asymmetric GARCH models also reject the hypothesis of asymmetric volatility, in contrast to most developed and emerging markets. Hence, good and bad news of the same magnitude have similar impacts on the volatility level in the Iranian stock market. The leverage effect modified by inflation advantage and price limit may be the main reasons for lack of asymmetric effect in emerging stock markets.

This study adopts causality in mean and variance approach to investigate dynamic relationship between stock market in an oil‐exporting country (Iran) and the international oil market. The empirical results imply that in view of underlying data‐generating process of the series, the variance of oil price fluctuations does not cause the variance of Iran stock returns. This means that there is no volatility spillover effect between Iran stock market and international oil market.