The Effect of Global Uncertainty on Iran’s Stock Market Returns with an Emphasis on the Role of Institutional Quality: Evidence from a Threshold Regression Model

Articles in Press

Document Type : Research Article

Authors

1 Assistant Professor in Department of Economics, Faculty of Literature and Humanities, Ilam University, Ilam, Iran.

2 Master's student in Economics, Faculty of Literature and Humanities, Ilam University, Ilam, Iran

10.22034/jepr.2026.145108.1331

Abstract

The stock market, as one of the vital pillars of the financial system, is constantly influenced by various factors, including macroeconomic variables and world uncertainty. This study examines the threshold role of institutional quality changes in shaping the relationship between Iranian stock returns and global uncertainty using quarterly data from 2009 to 2024 and the Threshold Regression method. The results indicate that changes in institutional quality have a threshold (−0.56), which affects the impact of exchange rates, oil prices, and global uncertainty on the stock market, dividing it into two behavioral regimes. In the first regime, when institutional quality changes are below this threshold, oil prices, exchange rates, and global uncertainty have a negative and significant effect on stock returns, while institutional quality acts positively and effectively. This suggests that even under weak institutional conditions, institutional improvements can facilitate stock market growth. In the second regime, after crossing the threshold, the effect of institutional quality remains positive, and other variables also have a positive impact on stock returns. Therefore, improving institutional quality should be considered a vital tool for strengthening the resilience of the capital market against domestic and global fluctuations.

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Journal of Economic Policies and Research

Articles in Press, Accepted Manuscript
Available Online from 22 June 2026

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History

  • Receive Date: 13 December 2025
  • Revise Date: 13 June 2026
  • Accept Date: 22 June 2026
  • Publish Date: 22 June 2026

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