Examining the Impulse Effects of Economic Uncertainty Oil Price Shocks and Governance Quality on the Stock Performance of Banks Listed on the Tehran Stock Exchange Using Structural Models

Abstract

This study examined the impulse effects of economic uncertainty, oil price shocks, and governance quality on the stock performance of banks listed on the Tehran Stock Exchange using a Bayesian panel vector autoregressive approach. The study population comprised 12 listed banks operating during the period from March 2013 to March 2024, selected through systematic elimination. To obtain precise estimates of the variables, Iranian crude oil price shocks were extracted using an exponential generalized autoregressive conditional heteroskedasticity model, while the economic policy uncertainty index was constructed by aggregating the interest rate, monetary base, budget deficit, tax revenues, and exchange rate using principal component analysis. The results of this stage indicated that exchange rate and monetary base fluctuations accounted for the largest shares of the uncertainty index. After the stationarity of the variables was confirmed using the Levin–Lin–Chu unit root test and cointegration and long-run equilibrium relationships among the variables were established through the Kao and Johansen–Juselius tests, the optimal lag length was determined to be one, and the F-Limer test supported the use of a panel data structure. The model estimation results indicated that oil price shocks and the economic uncertainty index had negative and significant effects on bank stock performance, whereas improvements in governance quality and bank size had direct, positive effects on bank stock returns and performance. The interaction variables further indicated that higher governance quality moderated the adverse effects of oil shocks and economic uncertainty and enhanced the resilience of the banking system to macroeconomic fluctuations. The estimated error correction model, with a negative coefficient of −0.097, indicated that approximately 10% of short-run disequilibria were dynamically adjusted toward long-run equilibrium each year. In addition, the impulse response functions indicated that bank stock returns increased in response to a positive oil shock, with the effect dissipating over time, whereas an economic uncertainty shock produced a transitory positive response followed by a deterioration in performance over the medium term. The variance decomposition results showed that, in the short run, most changes in the dependent variable were attributable to its own innovations; however, over a 10-year horizon, oil shocks and economic uncertainty accounted for approximately 17% and 8%, respectively, indicating a satisfactory model fit. Finally, the inverse-root unit-circle test showed that all roots lay within the unit circle, confirming the structural stability of the model.