The Research Department of Economics and Management of Tadbir Nikan Business, Marketing, and Finance Open 3092-6238 In Press 2027 08 01 Identification of Structural Monetary Policy Shocks and Evaluation of the Dynamic Response of Stock Returns: Emphasizing Investor Participation and Investor Sentiment Identification of Structural Monetary Policy Shocks and Evaluation of the Dynamic Response of Stock Returns: Emphasizing Investor Participation and Investor Sentiment 1 23 EN Journal Article 2026 06 18 <p>This study aimed to identify structural monetary policy shocks in Iran and evaluate the dynamic response of Tehran Stock Exchange returns to these shocks while considering investor sentiment, risk aversion, institutional conditions, exchange-rate dynamics, and market regimes. This quantitative time-series study used monthly data from December 2008 to December 2024. The baseline dataset comprised 193 observations, with 184 effective observations in the final VAR/SVAR estimation after applying transformations and lags. The endogenous vector included changes in annual inflation, monetary-base growth, investor sentiment, changes in a market-based risk-aversion proxy, and stock-market returns, while governance, the global financial crisis, and monthly seasonal dummies were treated as exogenous controls. Stationarity was assessed using ADF, Phillips–Perron, and KPSS tests. A VAR(3) was selected based on diagnostic adequacy, and structural monetary shocks were identified through recursive Cholesky restrictions. Dynamic effects were evaluated using Wild Bootstrap impulse responses and forecast error variance decomposition. Robustness was examined by adding exchange-rate changes, and a two-state Markov Switching model was estimated to investigate regime-dependent effects. The stock-return response to a positive structural monetary shock was initially negative, reaching its largest baseline decline around the third month, but no response from impact through 12 months was statistically significant at the 5% level. Monetary shocks explained only 1.25% of return forecast-error variance after 12 months, whereas return-specific shocks explained 90.57%. The exchange-rate robustness model yielded the same inference. Changes in risk aversion significantly predicted returns, whereas investor sentiment did not show a significant overall effect. Markov Switching identified a calm/low-return regime and a volatile/high-return regime with expected durations of 15.68 and 9.77 months, respectively, but regime differences in the effects of risk aversion, sentiment, and monetary shocks were not significant at 5%. Structural monetary policy shocks had a limited direct effect on Tehran Stock Exchange returns, while market-specific shocks and changes in risk pricing were more influential, and nonlinear market behavior was expressed mainly through differences in return levels, volatility, and regime persistence rather than through significant regime-dependent monetary effects.</p> https://bmfopen.com/index.php/bmfopen/article/download/622/456