University of Isfahan Journal of Asset Management and Financing 2383-1189 10 1 2022 03 21 Analysis of the Persistence of the Negative Relationship between Downside Risk and Expected Excess Returns in Future Analysis of the Persistence of the Negative Relationship between Downside Risk and Expected Excess Returns in Future 1 24 25634 10.22108/amf.2021.125483.1598 FA Mahshid Shahrzadi Post-Doc Researcher, Department of Accounting, Faculty of Administrate and Economic, University of Isfahan, Isfahan, Iran Darush Foroghi Associate Professor, Department of Accounting, Faculty of Administrate and Economic, University of Isfahan, Isfahan, Iran 0000-0002-7164-6728 Journal Article 2020 11 28 Abstract In risky situations, people's behavioral biases may lead them to deviate from rational decisions leading to a negative relationship anomaly between risk and return. Investors underreact the stock with a recently negative return (exposed to downside risk) resulting in a negative return momentum or the persistence of downside risk in future. In the present study, the negative relationship anomaly between the downside risk and the expected excess return is investigated. Also, the exploration of the relation of firm-specific characteristics and other risk measures with downside risk is investigated for the accurate explanation of the anomaly. In addition, the persistence of downside risk and the relationship between the amount of downside risk and persistence severity are investigated. Abstract In risky situations, people's behavioral biases may lead them to deviate from rational decisions leading to a negative relationship anomaly between risk and return. Investors underreact the stock with a recently negative return (exposed to downside risk) resulting in a negative return momentum or the persistence of downside risk in future. In the present study, the negative relationship anomaly between the downside risk and the expected excess return is investigated. Also, the exploration of the relation of firm-specific characteristics and other risk measures with downside risk is investigated for the accurate explanation of the anomaly. In addition, the persistence of downside risk and the relationship between the amount of downside risk and persistence severity are investigated.

https://amf.ui.ac.ir/article_25634_b29cfe8fb1311416c5300795f3c7bde4.pdf

University of Isfahan Journal of Asset Management and Financing 2383-1189 10 1 2022 03 21 Management Forecast, Idiosyncratic Risk, and Information Environment: Evidence of Listed Companies in ‎Tehran Stock Exchange (TSE)‎ Management Forecast, Idiosyncratic Risk, and Information Environment: Evidence of Listed Companies in ‎Tehran Stock Exchange (TSE)‎ 25 46 26649 10.22108/amf.2021.125612.1603 FA Mohammad Osoolian Assistant Professor, Department of Financial Management, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, ‎Iran Mohammad Esmaiel Fadaie Nejad Associate Professor, Department of Financial Management, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, ‎Iran Shadi Gheitasi Master of Financial Management, Department of Management and Accounting, Faulty of Management and Accounting, Shahid Beheshti ‎University, Tehran, Iran Journal Article 2020 11 28 Abstract Capital market plays an important role in attracting and circulating market liquidity and directing it to efficient economic sectors. Management forecast is one of the most important sources of information in the stock market, while its misrepresentation leads to more idiosyncratic risks and consequently inappropriate investment decisions by investors. In this study, management forecast errors were considered as a proxy for disclosure quality to investigate the relationship between information disclosure quality and idiosyncratic risk, as well as the effects of Information environment on these two variables in Tehran Stock Exchange (TSE). To this goal, a sample of 160 listed firms in TSE was examined from 2009 to 2017. The results indicated that the management forecast errors were positively related to idiosyncratic risks, while they were less positively related in a good information environment. Introduction Capital market participants rely on ongoing information to assess the risks and prospects of companies for accurate stock pricing. Due to the wide range of risks and economic, social, and political adverse events occurring in the world with the passage of time, uncertainty about the future and the need for managing all types of risks have increased. Idiosyncratic risk is one of the important risks for firms. This risk is unique to a specific company or industry. Management reporting is one of the voluntary information disclosure mechanisms, through which a company provides the information and signals related to its expected performance. Accordingly, improving the quality of financial reporting reduces information asymmetry and idiosyncratic risks. In addition to financial reporting, management forecasts are an important channel for disclosing information, while management biases can affect the idiosyncratic risks of companies. This paper used management forecast error as a proxy for disclosure quality to investigate the relationship between disclosure quality and idiosyncratic risk. Analytical models in accounting usually assume that information noise can be lowered by signals. This assumption suggests that the effect of one signal will be lessened if other signals are more correlated with a firm’s “true” value. On the one hand, a poor information environment is indicative of little alternative information (other than accounting information) for predicting a firm’s future cash flow. Therefore, high-quality accounting information can alleviate investment noise. On the other hand, if the information environment is rich, investors can easily have access to other information sources and reduce their uncertainty. In such a situation, investors may pay less attention to the disclosed information. Accordingly, this study emphasized on the effects of the information environment on disclosure quality and idiosyncratic risk as a necessity. The evidence showed that no studies had been conducted on the interactive relationship between management forecast and idiosyncratic risk, as well as the effects of information environment on these two variables in TSE. In addition, the parameters of measuring the information environment had been localized based on the available data in Iran and selected by relying on the importance and availability of information. Recognizing this phenomenon and making the right decision about this issue were the innovative features of this research, thus making it different from other parallel studies. Method and Data To test the research hypotheses, a sample of 160 listed firms in TSE was examined from 2009 to 2017 by using a multivariate regression model and panel data. Findings The research results indicated that the management forecast errors were statistically significant for the listed companies in TSE. They were also shown to be positively correlated with idiosyncratic risks. Finally, the evidence demonstrated that management forecast errors were less positively related with idiosyncratic risks in firms with a better information environment. Conclusion and discussion According to the results, management forecasts could be erroneous in Iran and sometimes had a high deviation from the realized revenues. As we know, investors need forward-looking information to make decisions based on risk and future return predictions by companies. Nevertheless, Iranian investors were found to only rely on retrospective information and management forecasts, which made them not have optimal decisions due to the presence of errors in those reports and this could increase their investment risks. Based on the findings, proper disclosure of financial information, such as on-time and accurate forecasts, could reduce the risks and augment stock liquidities of the companies. Therefore, the higher the information transparencies of the companies were, the higher their degrees of confidence could be and the lower their investment risks were thus witnessed. Finally, the results indicated that management forecast errors are less positively related to idiosyncratic risks in a relatively good information environment. Larger companies with more capitals are generally associated with a higher quality information environment. In addition, the existence of information asymmetry between a company’s internal managers and investors reduces the risk of conflicting choices. In other words, higher levels of information symmetry are associated with a lower bid-ask spread. Abstract Capital market plays an important role in attracting and circulating market liquidity and directing it to efficient economic sectors. Management forecast is one of the most important sources of information in the stock market, while its misrepresentation leads to more idiosyncratic risks and consequently inappropriate investment decisions by investors. In this study, management forecast errors were considered as a proxy for disclosure quality to investigate the relationship between information disclosure quality and idiosyncratic risk, as well as the effects of Information environment on these two variables in Tehran Stock Exchange (TSE). To this goal, a sample of 160 listed firms in TSE was examined from 2009 to 2017. The results indicated that the management forecast errors were positively related to idiosyncratic risks, while they were less positively related in a good information environment. Introduction Capital market participants rely on ongoing information to assess the risks and prospects of companies for accurate stock pricing. Due to the wide range of risks and economic, social, and political adverse events occurring in the world with the passage of time, uncertainty about the future and the need for managing all types of risks have increased. Idiosyncratic risk is one of the important risks for firms. This risk is unique to a specific company or industry. Management reporting is one of the voluntary information disclosure mechanisms, through which a company provides the information and signals related to its expected performance. Accordingly, improving the quality of financial reporting reduces information asymmetry and idiosyncratic risks. In addition to financial reporting, management forecasts are an important channel for disclosing information, while management biases can affect the idiosyncratic risks of companies. This paper used management forecast error as a proxy for disclosure quality to investigate the relationship between disclosure quality and idiosyncratic risk. Analytical models in accounting usually assume that information noise can be lowered by signals. This assumption suggests that the effect of one signal will be lessened if other signals are more correlated with a firm’s “true” value. On the one hand, a poor information environment is indicative of little alternative information (other than accounting information) for predicting a firm’s future cash flow. Therefore, high-quality accounting information can alleviate investment noise. On the other hand, if the information environment is rich, investors can easily have access to other information sources and reduce their uncertainty. In such a situation, investors may pay less attention to the disclosed information. Accordingly, this study emphasized on the effects of the information environment on disclosure quality and idiosyncratic risk as a necessity. The evidence showed that no studies had been conducted on the interactive relationship between management forecast and idiosyncratic risk, as well as the effects of information environment on these two variables in TSE. In addition, the parameters of measuring the information environment had been localized based on the available data in Iran and selected by relying on the importance and availability of information. Recognizing this phenomenon and making the right decision about this issue were the innovative features of this research, thus making it different from other parallel studies. Method and Data To test the research hypotheses, a sample of 160 listed firms in TSE was examined from 2009 to 2017 by using a multivariate regression model and panel data. Findings The research results indicated that the management forecast errors were statistically significant for the listed companies in TSE. They were also shown to be positively correlated with idiosyncratic risks. Finally, the evidence demonstrated that management forecast errors were less positively related with idiosyncratic risks in firms with a better information environment. Conclusion and discussion According to the results, management forecasts could be erroneous in Iran and sometimes had a high deviation from the realized revenues. As we know, investors need forward-looking information to make decisions based on risk and future return predictions by companies. Nevertheless, Iranian investors were found to only rely on retrospective information and management forecasts, which made them not have optimal decisions due to the presence of errors in those reports and this could increase their investment risks. Based on the findings, proper disclosure of financial information, such as on-time and accurate forecasts, could reduce the risks and augment stock liquidities of the companies. Therefore, the higher the information transparencies of the companies were, the higher their degrees of confidence could be and the lower their investment risks were thus witnessed. Finally, the results indicated that management forecast errors are less positively related to idiosyncratic risks in a relatively good information environment. Larger companies with more capitals are generally associated with a higher quality information environment. In addition, the existence of information asymmetry between a company’s internal managers and investors reduces the risk of conflicting choices. In other words, higher levels of information symmetry are associated with a lower bid-ask spread.

https://amf.ui.ac.ir/article_26649_706f9d23bf1cc183f66f6518a6d37c5a.pdf

University of Isfahan Journal of Asset Management and Financing 2383-1189 10 1 2022 03 21 Modeling the Dynamic Financial Condition Index (FCI) and Assessing Its Effectiveness in Predicting Iran’s Stock ‎Returns Modeling the Dynamic Financial Condition Index (FCI) and Assessing Its Effectiveness in Predicting Iran’s Stock ‎Returns 47 72 26718 10.22108/amf.2022.129138.1672 FA Seyed Aziz Arman Professor, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran Ebrahim Anvari Associate Professor, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University Ahvaz, Ahvaz, Iran 0000-0002-6050-8465 Samere RakiKianpour Ph.‎‏ ‏D. Candidate, Department of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University Ahvaz, Ahvaz, Iran Journal Article 2021 07 27 This paper used a factor-augmented vector autoregressive model with time-varying coefficients to construct a financial conditions index. Time variation in the model’s parameters allowed the weights to be attached to each variable in the index to evolve and evaluate dynamics across time. The ability of the constructed index to predict various variables was also evaluated. The Financial Condition Index (FCI) was estimated by using the TVP-FAVAR method based on the quarterly data of the period of 1989-2019. The variables used included interest rate, exchange rate growth, inflation rate, consumption growth, banking facility growth, total stock market index growth, money supply growth, oil revenue growth, and gross domestic product growth rate. The findings indicated significant volatilities in the model’s parameters. The shock from improving the FCI led to a positive response to the stock market index. According to the findings, the constructed FCI had high predictability. Introduction This paper reviewed the Financial Conditions Index (FCI) in the context of Iran. An FCI combines at least 4 financial prices: a short interest rate, a bond rate, an exchange rate, and a stock price index. The mentioned index may have the ability to summarize financial conditions. Therefore, it can be a valuable tool for policymakers, households, and firms. Monetary policymakers can also employ FCI to investigate the extensive effects of monetary policy on financial markets. The construction and use of FCI involve 3 issues, including selection of variables to enter into FCI, weights that are used to average these variables, relationship between FCI and macroeconomy, and assessment of the predictive power of this index for economic variables. This paper used a factor-augmented vector autoregressive model with Time-Varying Parameter Factor-Augmented Vector Auto-Regressive (TVP-FAVAR) coefficients to construct the index. Time variation in the model’s parameters allowed the weights to be attached to each variable in the index to evolve and evaluate dynamics across time. Then, the ability of this index to predict various variables, including stock returns, was evaluated. Method and Data The p-lag TVP-FAVAR model in this paper took the following form: = + + where is the regression coefficient; is factor loading; is the latent factor that can interpret as FCI; is a vector of intercepts; are VAR coefficients; and and are zero-mean Gaussian disturbances with the time-varying covariances of Vt and Qt, respectively. The model was estimated by using the Markov Chain Monte Carlo (MCMC) methods. Short-term-investment deposit rate (one-year), non-official exchange rate growth, inflation rate, consumption growth, banking facility growth, total stock market index growth, money supply growth, oil revenue growth, and GDP growth were selected as the model variables to construct the FCI. The model estimations were made by using the quarterly data of 1989-2019. The data were extracted from the official website of the Central Bank of Iran and the Economic and Financial Databank of Iran. All the series were seasonally adjusted by using the X-12 procedure. Findings The augmented Dickey-Fuller (ADF) and Zivot-Andrews unit root tests were performed. All the series were stationary in level or first differences. According to the Bai-Ng criteria, the number of factors was estimated to be two. According to the Schwarz information criterion, the number of lags was estimated to be one. The results indicated significant volatility of the developed FCI index. Nevertheless, the stochastic volatility or variance of the error terms of the financial condition index decreased. The posterior mean results showed that the oil revenue and money supply shocks could positively affect the FCI. The Impulse Response Function (IRF) indicated that the gross domestic product positively responded to the shock in the financial condition index only for a short time, while its effect was negative in the second period. Moreover, the effect of the shock disappeared and in the long run did not affect the GDP. The growth in the consumption, exchange rate growth, and inflation rate positively responded to the FCI shock. Finally, the stock market index growth positively responded to the FCI shock within 10 periods. Predictions of the responses of the variables to the shock based on the financial condition index (4-period ahead, 8-period ahead, and 12-period ahead) indicated the high predictive power of the model. In addition, the results of the in-sample and out-of-sample prediction errors, Root Mean Square Error (RMSE), and Theil’s Inequality Coefficient (TIC) represented the high predictive power of the model. Conclusion and discussion Knowing that a financial condition index could be a useful tool for policymakers, an FCI was developed specifically for Iran. Our results suggested that investors should analyze the government’s previous and future decisions and policies and evaluate the macroeconomic variables before investing in the stock market. In addition, it is suggested that the stock market variable, which is one of the channels of the monetary transmission mechanism, be treated as an active monetary-policy mechanism in Iran although its inefficiency requires further attention. This paper used a factor-augmented vector autoregressive model with time-varying coefficients to construct a financial conditions index. Time variation in the model’s parameters allowed the weights to be attached to each variable in the index to evolve and evaluate dynamics across time. The ability of the constructed index to predict various variables was also evaluated. The Financial Condition Index (FCI) was estimated by using the TVP-FAVAR method based on the quarterly data of the period of 1989-2019. The variables used included interest rate, exchange rate growth, inflation rate, consumption growth, banking facility growth, total stock market index growth, money supply growth, oil revenue growth, and gross domestic product growth rate. The findings indicated significant volatilities in the model’s parameters. The shock from improving the FCI led to a positive response to the stock market index. According to the findings, the constructed FCI had high predictability. Introduction This paper reviewed the Financial Conditions Index (FCI) in the context of Iran. An FCI combines at least 4 financial prices: a short interest rate, a bond rate, an exchange rate, and a stock price index. The mentioned index may have the ability to summarize financial conditions. Therefore, it can be a valuable tool for policymakers, households, and firms. Monetary policymakers can also employ FCI to investigate the extensive effects of monetary policy on financial markets. The construction and use of FCI involve 3 issues, including selection of variables to enter into FCI, weights that are used to average these variables, relationship between FCI and macroeconomy, and assessment of the predictive power of this index for economic variables. This paper used a factor-augmented vector autoregressive model with Time-Varying Parameter Factor-Augmented Vector Auto-Regressive (TVP-FAVAR) coefficients to construct the index. Time variation in the model’s parameters allowed the weights to be attached to each variable in the index to evolve and evaluate dynamics across time. Then, the ability of this index to predict various variables, including stock returns, was evaluated. Method and Data The p-lag TVP-FAVAR model in this paper took the following form: = + + where is the regression coefficient; is factor loading; is the latent factor that can interpret as FCI; is a vector of intercepts; are VAR coefficients; and and are zero-mean Gaussian disturbances with the time-varying covariances of Vt and Qt, respectively. The model was estimated by using the Markov Chain Monte Carlo (MCMC) methods. Short-term-investment deposit rate (one-year), non-official exchange rate growth, inflation rate, consumption growth, banking facility growth, total stock market index growth, money supply growth, oil revenue growth, and GDP growth were selected as the model variables to construct the FCI. The model estimations were made by using the quarterly data of 1989-2019. The data were extracted from the official website of the Central Bank of Iran and the Economic and Financial Databank of Iran. All the series were seasonally adjusted by using the X-12 procedure. Findings The augmented Dickey-Fuller (ADF) and Zivot-Andrews unit root tests were performed. All the series were stationary in level or first differences. According to the Bai-Ng criteria, the number of factors was estimated to be two. According to the Schwarz information criterion, the number of lags was estimated to be one. The results indicated significant volatility of the developed FCI index. Nevertheless, the stochastic volatility or variance of the error terms of the financial condition index decreased. The posterior mean results showed that the oil revenue and money supply shocks could positively affect the FCI. The Impulse Response Function (IRF) indicated that the gross domestic product positively responded to the shock in the financial condition index only for a short time, while its effect was negative in the second period. Moreover, the effect of the shock disappeared and in the long run did not affect the GDP. The growth in the consumption, exchange rate growth, and inflation rate positively responded to the FCI shock. Finally, the stock market index growth positively responded to the FCI shock within 10 periods. Predictions of the responses of the variables to the shock based on the financial condition index (4-period ahead, 8-period ahead, and 12-period ahead) indicated the high predictive power of the model. In addition, the results of the in-sample and out-of-sample prediction errors, Root Mean Square Error (RMSE), and Theil’s Inequality Coefficient (TIC) represented the high predictive power of the model. Conclusion and discussion Knowing that a financial condition index could be a useful tool for policymakers, an FCI was developed specifically for Iran. Our results suggested that investors should analyze the government’s previous and future decisions and policies and evaluate the macroeconomic variables before investing in the stock market. In addition, it is suggested that the stock market variable, which is one of the channels of the monetary transmission mechanism, be treated as an active monetary-policy mechanism in Iran although its inefficiency requires further attention.

https://amf.ui.ac.ir/article_26718_335f238ec0ef65786588d02e44791e0e.pdf

University of Isfahan Journal of Asset Management and Financing 2383-1189 10 1 2022 03 21 Financial Restatement Impacts on Investment Inefficiencies Considering the Role of Financial Constraints Financial Restatement Impacts on Investment Inefficiencies Considering the Role of Financial Constraints 73 92 26959 10.22108/amf.2022.125688.1604 FA Mohammad Ebrahim Aghababaei Assistant Professor, Department of Financial Management and Financial Engineering, Faculty of Financial Sciences, Kharazmi University, ‎Tehran, Iran ‎ 0000-0003-3123-7994 Atefeh Rezaeian Ramsheh M.A., Department of Financial Management and Financial Engineering, Faculty of Financial Sciences, Kharazmi University, Tehran, Iran ‎ Journal Article 2021 01 14 Abstract The purpose of this research was to investigate the effects of financial restatement on various investment inefficiencies with emphasis on the role of financial constraints. In this study, Richardson (2006)'s model of investing expectations was used to measure investment inefficiencies and categorize the sample member firms into over-invested or under-invested corporates. Also, the index defined by Kaplan-Zingales (1997) was utilized to examine the financial constraints. The sample included 174 companies that were active over 6 years (2012-2017) in the Tehran Stock Exchange. The results indicated that financial restatement could reduce the over-investment, while it exacerbated the under-investment ones. On the other hand, the companies with over-investment might experience greater financing constraints after financial restatement. This relationship was not significant for under-invested companies. Finally, the argument that financial restatement could affect investment inefficiencies by indirectly affecting financing constraints was also not approved by any groups of the compaines. Introduction From the perspective of investors, restatement news not only reflect the performance problems at the previous period, but also is a kind of forecast of future problems for the company and its management. It causes investors to distrust in the management and reduce the earnings quality (Akhgar & Dadejani, 2016) so that it can lead to financing constraints and thus prevent optimal investment decisions and consequently investment inefficiency. Therefore, in this study, the effects of financial restatement on investment inefficiencies were examined. Method and Data The sample included 174 companies listed on Tehran Stock Exchange (TSE), which were examined in the period of 2012-2017. The study was conducted by using the panel data method. To measure the investment inefficiency, we used Equation 1, which was derived from Richardson (2006)’s model of investment expectations: Eq. (1) Investi,t = β0 + β1 Growi,t-1+ β2 Leveragei,t-1 + β3 Cashi,t-1 + β4 Ln (Age) i,t-1 + β5 Ln (Size) i,t-1 + β6 Stock Returni,t-1 + β7 Investi,t-1 + i,t Also, the index defined by Kaplan-Zingales (1997) was applied to measure the financial constraints: Eq. (2) KZ = β0 - β1 - β2× - β3 × + β4×LEVi.t - β5× QTOBINi,t After sorting the data for each variable, Model No. 1 was utilized to examine the relationship between the financial restatement and financial constraints: M. (1) Logit E(FCi,t) = β0 + β1 RESi,t+ β2 SIZEi,t+ β3 ROAi,t+ β4 GROWi,t+β5 LEVi,t+1+β6 INSi,t+1+β7 First10i,t + εi,t Finally, the following model (2) was used to investigate the role of financial constraints in the relationship between financial restatement and types of investment inefficiencies: M. (2) INVi,t+1 - INVi,t-1= γ0+ γ1RESi,t+ γ2FCi,t+1+ γ3SIZEi,t+1+γ4ROAi,t+1+γ5GROWi,t+1 + γ6LEVi,t+1 + γ7INSi,t+1 + γ8First10i,t+1 + εi,t Findings After estimating Model 1, the coefficient of financial restatement was found to be significant for companies with over-investment at the confidence level of 90%, but it was not significant for companies with under-investment. The coefficients of return on assets and leverage were also significant in both categories of companies at 95% confidence level. According to McFadden's coefficient of determination, the explanatory power of independent variables was greater in the group of companies with over-investment. The estimation results of Model 2 showed that the coefficient of financial restatement was negative for both groups of companies. It was significant for companies with over-investment and under-investment at the confidence levels of 95 and 90%, respectively. However, considering that the probability of financial constraints was more than 5%, this variable was significant in none of the categories of companies. Conclusion and discussion The results showed that financial restatement could reduce corporate over-investment, while it exacerbated corporate under-investment. This result might be due to the fact that the financial restatement caused shareholders to focus more on the integrity of management and accuracy of financial statements and demand for more reporting from managers. Thus, agency problems were reduced and corporate investment efficiencies were improved by reducing over-investment. The results also revealed that companies with over-investment might experience more financial constraints after financial restatement. Of course, this relationship was not significant for companies with under-investment. Due to the increased probability of financial constraints after financial restatement for companies with over-investment, these companies are advised to prepare their financial statements more carefully in order to avoid financial constraints when dealing with suitable investment opportunities so that they do not need to resubmit their financial statements. Abstract The purpose of this research was to investigate the effects of financial restatement on various investment inefficiencies with emphasis on the role of financial constraints. In this study, Richardson (2006)'s model of investing expectations was used to measure investment inefficiencies and categorize the sample member firms into over-invested or under-invested corporates. Also, the index defined by Kaplan-Zingales (1997) was utilized to examine the financial constraints. The sample included 174 companies that were active over 6 years (2012-2017) in the Tehran Stock Exchange. The results indicated that financial restatement could reduce the over-investment, while it exacerbated the under-investment ones. On the other hand, the companies with over-investment might experience greater financing constraints after financial restatement. This relationship was not significant for under-invested companies. Finally, the argument that financial restatement could affect investment inefficiencies by indirectly affecting financing constraints was also not approved by any groups of the compaines. Introduction From the perspective of investors, restatement news not only reflect the performance problems at the previous period, but also is a kind of forecast of future problems for the company and its management. It causes investors to distrust in the management and reduce the earnings quality (Akhgar & Dadejani, 2016) so that it can lead to financing constraints and thus prevent optimal investment decisions and consequently investment inefficiency. Therefore, in this study, the effects of financial restatement on investment inefficiencies were examined. Method and Data The sample included 174 companies listed on Tehran Stock Exchange (TSE), which were examined in the period of 2012-2017. The study was conducted by using the panel data method. To measure the investment inefficiency, we used Equation 1, which was derived from Richardson (2006)’s model of investment expectations: Eq. (1) Investi,t = β0 + β1 Growi,t-1+ β2 Leveragei,t-1 + β3 Cashi,t-1 + β4 Ln (Age) i,t-1 + β5 Ln (Size) i,t-1 + β6 Stock Returni,t-1 + β7 Investi,t-1 + i,t Also, the index defined by Kaplan-Zingales (1997) was applied to measure the financial constraints: Eq. (2) KZ = β0 - β1 - β2× - β3 × + β4×LEVi.t - β5× QTOBINi,t After sorting the data for each variable, Model No. 1 was utilized to examine the relationship between the financial restatement and financial constraints: M. (1) Logit E(FCi,t) = β0 + β1 RESi,t+ β2 SIZEi,t+ β3 ROAi,t+ β4 GROWi,t+β5 LEVi,t+1+β6 INSi,t+1+β7 First10i,t + εi,t Finally, the following model (2) was used to investigate the role of financial constraints in the relationship between financial restatement and types of investment inefficiencies: M. (2) INVi,t+1 - INVi,t-1= γ0+ γ1RESi,t+ γ2FCi,t+1+ γ3SIZEi,t+1+γ4ROAi,t+1+γ5GROWi,t+1 + γ6LEVi,t+1 + γ7INSi,t+1 + γ8First10i,t+1 + εi,t Findings After estimating Model 1, the coefficient of financial restatement was found to be significant for companies with over-investment at the confidence level of 90%, but it was not significant for companies with under-investment. The coefficients of return on assets and leverage were also significant in both categories of companies at 95% confidence level. According to McFadden's coefficient of determination, the explanatory power of independent variables was greater in the group of companies with over-investment. The estimation results of Model 2 showed that the coefficient of financial restatement was negative for both groups of companies. It was significant for companies with over-investment and under-investment at the confidence levels of 95 and 90%, respectively. However, considering that the probability of financial constraints was more than 5%, this variable was significant in none of the categories of companies. Conclusion and discussion The results showed that financial restatement could reduce corporate over-investment, while it exacerbated corporate under-investment. This result might be due to the fact that the financial restatement caused shareholders to focus more on the integrity of management and accuracy of financial statements and demand for more reporting from managers. Thus, agency problems were reduced and corporate investment efficiencies were improved by reducing over-investment. The results also revealed that companies with over-investment might experience more financial constraints after financial restatement. Of course, this relationship was not significant for companies with under-investment. Due to the increased probability of financial constraints after financial restatement for companies with over-investment, these companies are advised to prepare their financial statements more carefully in order to avoid financial constraints when dealing with suitable investment opportunities so that they do not need to resubmit their financial statements.

https://amf.ui.ac.ir/article_26959_0edf8501ec5727382e4993d365de0020.pdf

University of Isfahan Journal of Asset Management and Financing 2383-1189 10 1 2022 03 21 Effects of Managers' Optimistic and Myopic Behavior on the Asymmetry of Cost Behavior and Various Companies’ Strategies Effects of Managers' Optimistic and Myopic Behavior on the Asymmetry of Cost Behavior and Various Companies’ Strategies 93 116 27008 10.22108/amf.2022.125924.1607 FA Javad Nik Kar Assistant Professor, Department of Accounting, Faculty of Humanities, East Tehran Branch, Islamic Azad University, Tehran, Iran Elham Hamidi Assistant Professor, Department of Accounting, Faculty of Humanities, Department of Accounting in Khatam University, Tehran, Iran Sepideh Abedini M.A., Department of Accounting, Faculty of Humanities, East Tehran Branch, Islamic Azad University, Tehran, Iran Journal Article 2021 01 16 Abstract This study aimed to examine the effects of managers' optimistic and myopic behaviors on the asymmetry of cost behavior and various companies’ strategies in the firms listed on Tehran Stock Exchange (TSE). For this purpose, 8 hypotheses were developed and the data from 174 companies listed on TSE were analyzed for the period of 2008-2018. In this research, 3 strategies, including firm competitive strategy, corporate finance strategy, and corporate investment strategy, were used as proxies for the companies’ different strategies. To test the hypotheses, the panel data and fixed effects regression models were tested. The results showed that there was an asymmetric cost behavior phenomenon in the firms listed on TSE and the managers’ optimistic behaviors increased the severity of asymmetric cost behavior, but the myopic behavior did not have a significant effect on the asymmetric cost behavior. Also, the findings confirmed that the managers' optimistic behaviors affected the companies' competitive strategies and investments, but the managers' myopic behaviors had no effects on the companies' competitive strategies and investments. On the other hand, the findings indicated that the managers’ optimistic and myopic behaviors affected the companies' financing strategies. The results showed that the managers’ behavioral characteristics affected management of cost behavior and the companies’ different strategies. Keywords: Cost Behavior Management, Manager’s Optimistic Behavior, Manager’s Myopic Behavior, Company’s Strategy. Introduction Some behavioral and psychological factors, such as manager’s overconfidence and short-sightedness, can affect entity strategies and cause significant changes in them (Duellman, Hurwitz & Sun, 2015). Manager’s overconfidence is one of the newest behavioral financial concepts, which has achieved a special position in financial and psychological theories. Overconfidence causes a person to estimate his abilities more than usual, risk less than usual, and imagine that he/she can control the events, while this may not be the case (Nofsinger, 2001). Managers' overconfidence can also affect the way financial information is provided by them for the capital markets because they believe that the shareholders’ values will be maximized in the long term by continuing investment projects; therefore, they will not have a desire to disclose confidential information that has a negative investment feedback, but use positive accruals to convey their optimistic beliefs (Scherand & Zechman, 2011) or even delay their recognition of losses (Ahmed & Duellman, 2013). In addition, short-sighted activities have favorable temporary results and their negative consequences are visible in the long run because capital markets are not able to correctly understand the consequences of short-sightedness at the time of occurrence. When managers with a short-sighted attitude face a lower profit than expected, they may temporarily remove this defect by cutting research and development and marketing expenses, while this type of manipulation will not be effective in the long term. Its effects on the companies’ different strategies will vary (Lehman, 2004). Managers’ short-sighted behaviors, such as reducing research and development and marketing costs can also affect the cost management strategy in a long-term period. As a result, according to the mentioned effects, the main problem of this research was to investigate the effects of managers' short-sightedness and optimism on the asymmetry of cost behavior and different strategies in the companies listed on TSE. Method and Data Due to the impossibility of controlling all the related variables, this research could not be a pure experimental research, but it was a semi-experimental research according to the analysis of past information. In addition, considering that the results obtained from the study-specific problem or issue, it was a type of correlation analysis with a regression approach in terms of its applied goal and method (Aflatooni, 2013). Also, 174 companies were selected as the sample for this research. Findings The findings obtained from estimation of the model showed that the coefficient of the sales ratio of the current year to the previous year was -0.371 for the two-valued variable of sales decrease and its p-value was 0.007. In addition, the coefficient of adjustment variable of manager’s optimistic behavior based on the sales ratio of the current year to the previous year was equal to -0.413 for the two-valued variable of sales decrease and its p-value was 0.004, which was less than the 0.01. Therefore, considering the increase of a negative coefficient (-0.413 compared to -0.371) in the companies, it could be claimed that the managers’ optimistic behaviors had a significant positive effect on the asymmetry of cost behavior (increased negative coefficient) at the 1% significance level. According to the results obtained from estimation of the model, the coefficient of multiplication of the sales ratio of the current year to the previous year decrease was equal to -0.371 for the two-valued variable of sales and its p-value was 0.007. In addition, the coefficient of the adjustment variable of manager’s short-sighted behavior based on the sales ratio of the current year to the previous year was equal to 0.268 for the two-value variable of sales decrease and its error level, which was equal to 0.449, was less than the 0.01 significance level. Therefore, according to the positivity of the coefficient and p-value, it could be claimed that the managers’ short-sighted behaviors had an insignificant negative effect on the asymmetry of cost behavior at 1%, significance level thus causing positivity of the negative coefficient. Therefore, according to the probability value, the 5th hypothesis of the research was rejected at 1% significance level. In the 2nd, 3rd, and 4th hypotheses, the effects of manager’s optimistic behavior on the competitive strategies, investments, and financing in the companies listed in TSE were investigated. According to the results the variable coefficients of the managers’ optimistic behaviors were equal to 0.035, 0.011, and 0.021, and their p-values were 0.016, 0.001, and 0.000, respectively. Therefore, according to the positive coefficient of this variable and its p-value, it could be claimed that the managers’ optimistic behaviors had significant positive effects on the competitive strategies, investments, and financing of the companies at 5% significance level, which was in line with the results of Redge et al. (2014), Engelmeier (2010), and Adam and Kissen (2014). On the other hand, in the 6th, 7th, and 8th hypotheses, the effects of manager's short-sighted behavior on the competitive strategies, investments, and financing of the companies listed in TSE were investigated. According to the results the coefficients of manager’s short-sighted behavior were equal to -0.002, -0.006, and 0.011 and their p-values were 0.931, 0.305, and 0.037, respectively. Therefore, according to the negative coefficient of this variable and its p-value, it could be claimed that the managers’ short-sighted behaviors had significant positive effects on the companies’ financing strategies at 1% significance level, which was consistent with the results of Redge and Whites research (2014). However, the managers’ short-sighted behaviors had no significant effects on the companies’ competitive and investment strategies. Conclusion and discussion The results showed that the phenomenon of cost behavior asymmetry existed in the companies listed on TSE and the managers’ optimistic behaviors would increase the severity of the asymmetric behavior of costs, but the managers’ short-sighted behaviors had a significant effect on the asymmetry. In addition, the results confirmed that the managers’ optimistic behaviors had an effect on the companies’ competitive strategies and investments, but the managers’ short-sighted behaviors had no effects on their competitive strategies and investments. On the other hand, the results showed that the managers’ optimistic and short-sighted behaviors affected the companies’ financing strategies. According to the findings, the results revealed that the managers’ behavioral characteristics would affect asymmetry of the managers’ cost behaviors and the companies’ different strategies. Abstract This study aimed to examine the effects of managers' optimistic and myopic behaviors on the asymmetry of cost behavior and various companies’ strategies in the firms listed on Tehran Stock Exchange (TSE). For this purpose, 8 hypotheses were developed and the data from 174 companies listed on TSE were analyzed for the period of 2008-2018. In this research, 3 strategies, including firm competitive strategy, corporate finance strategy, and corporate investment strategy, were used as proxies for the companies’ different strategies. To test the hypotheses, the panel data and fixed effects regression models were tested. The results showed that there was an asymmetric cost behavior phenomenon in the firms listed on TSE and the managers’ optimistic behaviors increased the severity of asymmetric cost behavior, but the myopic behavior did not have a significant effect on the asymmetric cost behavior. Also, the findings confirmed that the managers' optimistic behaviors affected the companies' competitive strategies and investments, but the managers' myopic behaviors had no effects on the companies' competitive strategies and investments. On the other hand, the findings indicated that the managers’ optimistic and myopic behaviors affected the companies' financing strategies. The results showed that the managers’ behavioral characteristics affected management of cost behavior and the companies’ different strategies. Keywords: Cost Behavior Management, Manager’s Optimistic Behavior, Manager’s Myopic Behavior, Company’s Strategy. Introduction Some behavioral and psychological factors, such as manager’s overconfidence and short-sightedness, can affect entity strategies and cause significant changes in them (Duellman, Hurwitz & Sun, 2015). Manager’s overconfidence is one of the newest behavioral financial concepts, which has achieved a special position in financial and psychological theories. Overconfidence causes a person to estimate his abilities more than usual, risk less than usual, and imagine that he/she can control the events, while this may not be the case (Nofsinger, 2001). Managers' overconfidence can also affect the way financial information is provided by them for the capital markets because they believe that the shareholders’ values will be maximized in the long term by continuing investment projects; therefore, they will not have a desire to disclose confidential information that has a negative investment feedback, but use positive accruals to convey their optimistic beliefs (Scherand & Zechman, 2011) or even delay their recognition of losses (Ahmed & Duellman, 2013). In addition, short-sighted activities have favorable temporary results and their negative consequences are visible in the long run because capital markets are not able to correctly understand the consequences of short-sightedness at the time of occurrence. When managers with a short-sighted attitude face a lower profit than expected, they may temporarily remove this defect by cutting research and development and marketing expenses, while this type of manipulation will not be effective in the long term. Its effects on the companies’ different strategies will vary (Lehman, 2004). Managers’ short-sighted behaviors, such as reducing research and development and marketing costs can also affect the cost management strategy in a long-term period. As a result, according to the mentioned effects, the main problem of this research was to investigate the effects of managers' short-sightedness and optimism on the asymmetry of cost behavior and different strategies in the companies listed on TSE. Method and Data Due to the impossibility of controlling all the related variables, this research could not be a pure experimental research, but it was a semi-experimental research according to the analysis of past information. In addition, considering that the results obtained from the study-specific problem or issue, it was a type of correlation analysis with a regression approach in terms of its applied goal and method (Aflatooni, 2013). Also, 174 companies were selected as the sample for this research. Findings The findings obtained from estimation of the model showed that the coefficient of the sales ratio of the current year to the previous year was -0.371 for the two-valued variable of sales decrease and its p-value was 0.007. In addition, the coefficient of adjustment variable of manager’s optimistic behavior based on the sales ratio of the current year to the previous year was equal to -0.413 for the two-valued variable of sales decrease and its p-value was 0.004, which was less than the 0.01. Therefore, considering the increase of a negative coefficient (-0.413 compared to -0.371) in the companies, it could be claimed that the managers’ optimistic behaviors had a significant positive effect on the asymmetry of cost behavior (increased negative coefficient) at the 1% significance level. According to the results obtained from estimation of the model, the coefficient of multiplication of the sales ratio of the current year to the previous year decrease was equal to -0.371 for the two-valued variable of sales and its p-value was 0.007. In addition, the coefficient of the adjustment variable of manager’s short-sighted behavior based on the sales ratio of the current year to the previous year was equal to 0.268 for the two-value variable of sales decrease and its error level, which was equal to 0.449, was less than the 0.01 significance level. Therefore, according to the positivity of the coefficient and p-value, it could be claimed that the managers’ short-sighted behaviors had an insignificant negative effect on the asymmetry of cost behavior at 1%, significance level thus causing positivity of the negative coefficient. Therefore, according to the probability value, the 5th hypothesis of the research was rejected at 1% significance level. In the 2nd, 3rd, and 4th hypotheses, the effects of manager’s optimistic behavior on the competitive strategies, investments, and financing in the companies listed in TSE were investigated. According to the results the variable coefficients of the managers’ optimistic behaviors were equal to 0.035, 0.011, and 0.021, and their p-values were 0.016, 0.001, and 0.000, respectively. Therefore, according to the positive coefficient of this variable and its p-value, it could be claimed that the managers’ optimistic behaviors had significant positive effects on the competitive strategies, investments, and financing of the companies at 5% significance level, which was in line with the results of Redge et al. (2014), Engelmeier (2010), and Adam and Kissen (2014). On the other hand, in the 6th, 7th, and 8th hypotheses, the effects of manager's short-sighted behavior on the competitive strategies, investments, and financing of the companies listed in TSE were investigated. According to the results the coefficients of manager’s short-sighted behavior were equal to -0.002, -0.006, and 0.011 and their p-values were 0.931, 0.305, and 0.037, respectively. Therefore, according to the negative coefficient of this variable and its p-value, it could be claimed that the managers’ short-sighted behaviors had significant positive effects on the companies’ financing strategies at 1% significance level, which was consistent with the results of Redge and Whites research (2014). However, the managers’ short-sighted behaviors had no significant effects on the companies’ competitive and investment strategies. Conclusion and discussion The results showed that the phenomenon of cost behavior asymmetry existed in the companies listed on TSE and the managers’ optimistic behaviors would increase the severity of the asymmetric behavior of costs, but the managers’ short-sighted behaviors had a significant effect on the asymmetry. In addition, the results confirmed that the managers’ optimistic behaviors had an effect on the companies’ competitive strategies and investments, but the managers’ short-sighted behaviors had no effects on their competitive strategies and investments. On the other hand, the results showed that the managers’ optimistic and short-sighted behaviors affected the companies’ financing strategies. According to the findings, the results revealed that the managers’ behavioral characteristics would affect asymmetry of the managers’ cost behaviors and the companies’ different strategies.

https://amf.ui.ac.ir/article_27008_bd48ec78382f704368e22bc475505c8e.pdf

University of Isfahan Journal of Asset Management and Financing 2383-1189 10 1 2022 03 21 Testing the Effects of Exchange Rate Jumps and Global Financial Crisis Using the Overshooting Dornbusch Model for the Financial Stability of the State Banking System of Iran's Economy Testing the Effects of Exchange Rate Jumps and Global Financial Crisis Using the Overshooting Dornbusch Model for the Financial Stability of the State Banking System of Iran's Economy 117 140 26589 10.22108/amf.2022.125736.1605 FA Akram Falahi Ph.D. Student of Economic, Department of Economics, Aligudarz Branch, Islamic Azad University, Lorestan, Iran Mahdi Toghyani Assistant Professor, Department of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran Hamid Asaiesh Assistant Professor, Department of Economics, Faculty of Humanities, Grand Ayatollah Boroujerdi University, Boroujerd, Iran Mahdi Zahed Gharavi Assistant Professor, Department of Economics, Faculty of Humanities, Grand Ayatollah Boroujerdi University, Boroujerd, Iran Journal Article 2021 06 10 Economic studies since 2000 have been more inclined to identify factors that affect the stability of banks, such as global financial crises, oil fluctuations, and exchange rate fluctuations. Due to the strong dependence of the country's economy on the banking system, the banking system’s stability is doubly important and it is significant to study the factors that disrupt this stability. This study examined the financial stability of the state banking system of Iran's economy by using the Markov switching regime econometric model and the overshooting Dornbusch Model during the years of 1984-2018. Also, the global financial crisis was taken into account based on the impact of exchange rate jumps. Based on the results, the amounts of width from the origin in the first and second regimes were 0.03 and -4.05 and the variance of the disturbance components related to the first and second regimes were equal to 0.73 and 3.51, respectively. The results showed that with the occurrence of negative oil shocks, foreign exchange earnings of Iran's economy decreased and despite currency price jumps, financial crises, and increasing credit risk, banking stability decreased due to high risk of banking activity (credit risk) and transfer. It is often said that for price stability and even economic stability, instability and liquidity flows should be avoided because if the growth of liquidity is much greater than the growth of production, according to the simple implication of some money theory, this will lead to inflation and price growth. However, it should be noted that the level of liquidity and money creation in the economy and the optimal ratio of liquidity to GDP depend on the structure of each economy, the technological complexities of goods and services, and the number of stages of their construction. Therefore, for each economy, a certain level of liquidity and money creation cannot be justified as a general rule, but the quantity of liquidity and money creation in each economy depends on the structural, technical conditions of the economy and commodities, speculative attacks, and foreign exchange market pressure. Therefore, expansionary monetary policies need to be adjusted in terms of whether or not the exchange rate is stabilized. Keywords: Financial Stability, Exchange Rate Jump, Dornbusch’s Overshooting Model, Global Financial Crisis, Econometric Modeling of Markov Switching Regime. Introduction Economic studies since 2000 have been more inclined to identify factors that affect the stability of banks, such as global financial crises, oil fluctuations, and exchange rate fluctuations. Economic sanctions and banking risks were noted. The oil crisis in recent decades is rooted in oil shocks that have occurred for a variety of reasons. Monetary and financial crises are rooted in a set of political and economic factors and market forces that affect the exchange rate in the country. Countries that have experienced these crises are witnessing stable current account deficits, increased values of imports relative to the net income from exports of goods and services in the country due to the devaluation of exports after devaluation of their domestic currency, and increased borrowing from foreign organizations that will be responsible for financing long-term projects and infrastructure of their countries (Nazar Por, Salimi, 2016). The important point is that a combination of different factors can cause these crises in the economy and resolving them requires several time periods. Of the reasons for such crises in the country are weakness of the country's monetary system, inability in the political arena and economic policy-making, loss of public confidence in the country's economic situation, and changing oil prices in the world markets that finally make people worried about the future economic situation of their country. If these problems are resolved, there will be no devaluation of the domestic currency. The theory of exchange rate jumps and their relationship to financial stability, together with its consequences, was first proposed by Dorenbusch (1982) and studied by other researchers, including Petti (1985), Adams and Grous (1986), and Grimler (1994). Dorenbusch (1982) believed that targeting the real exchange rate would affect production and price stability in two ways. On the one hand, stability of the nominal and real exchange rates will stabilize the total demand and on the other hand, the exchange rate through the supply side will affect the price level because the nominal exchange rate will affect prices through the costs of the imported intermediate goods. In other words, Dornbush believed that following the exchange rate rule would create stability in production on the one hand and destroy price stability on the other hand. Therefore, for the above reasons, he believed in the stability of the exchange rate, but accepted that prices would lose their stability by stabilizing the nominal exchange rate. Finally, he concluded that following the nominal exchange rate rule might be considered a good policy at some points but not at other times according to the economic requirements of any country. Due to the strong dependence of the country's economy on the banking system, the stability of the banking system will be doubly important; it is important to study the factors that disrupt this stability. Method and Data Given these issues, the present study examined the financial stability of the state banking system of Iran's economy by using econometric modeling of Markov switching regime and Dornbusch’s overshooting model during the years of 1984-2018 with regard to the impacts of exchange rate jumps and the global financial crisis. Findings Based on the results, the amounts of width from the origin in the first and second regimes were 0.03 and -4.05 and the variances of the disturbance components related to the first and second regimes were 0.73 and 3.51, respectively. In fact, the second regime (recession period) had more fluctuations than the first regime (boom period) in the present study. Also, based on the results of the economy's exposure to the recession period for the period under review, there were 18 recession periods versus 16 boom periods. The results showed that with the occurrence of negative oil shocks, the foreign exchange earnings of Iran's economy decreased and despite the currency price jumps, financial crises, and increasing credit risk, banking stability decreased due to high risk of banking activity (credit risk) and transfer. Imposing of this risk on other monetary and financial sectors, increasing the cost and complicating the process of receiving facilities, imposing this cost on other facilities and reducing the ability to provide credit, disruption of the monetary and banking system, reducing the efficiency of the banking system and lack of optimal allocation of financial resources to the required sectors, economic agents' pessimism about the monetary and banking system and increasing despair about the future, embezzlement of banks' rights by the influential people, and preventing these resources from entering the productive areas of the economy have all led to instability of the incomes of the state-owned banks. Conclusion and discussion It is often said that instability and liquidity flows should be avoided for price stability and even economic stability because if the growth of liquidity is much greater than the growth of production, this will lead to inflation and price growth according to the simple implications of some money theories. However, it should be noted that the level of liquidity and money creation in the economy and the optimal ratio of liquidity to GDP depend on the structure of each economy, technological complexities of goods and services, and number of their construction stages. Hence, for each economy, a certain level of liquidity and money creation cannot be justified as a general rule, but the quantity of liquidity and money creation in each economy depend on the structural and technical conditions of the economy and commodities, speculative attacks, and foreign exchange market pressure. Therefore, expansionary monetary policies need to be adjusted in terms of whether or not the exchange rate stabilizes. Economic studies since 2000 have been more inclined to identify factors that affect the stability of banks, such as global financial crises, oil fluctuations, and exchange rate fluctuations. Due to the strong dependence of the country's economy on the banking system, the banking system’s stability is doubly important and it is significant to study the factors that disrupt this stability. This study examined the financial stability of the state banking system of Iran's economy by using the Markov switching regime econometric model and the overshooting Dornbusch Model during the years of 1984-2018. Also, the global financial crisis was taken into account based on the impact of exchange rate jumps. Based on the results, the amounts of width from the origin in the first and second regimes were 0.03 and -4.05 and the variance of the disturbance components related to the first and second regimes were equal to 0.73 and 3.51, respectively. The results showed that with the occurrence of negative oil shocks, foreign exchange earnings of Iran's economy decreased and despite currency price jumps, financial crises, and increasing credit risk, banking stability decreased due to high risk of banking activity (credit risk) and transfer. It is often said that for price stability and even economic stability, instability and liquidity flows should be avoided because if the growth of liquidity is much greater than the growth of production, according to the simple implication of some money theory, this will lead to inflation and price growth. However, it should be noted that the level of liquidity and money creation in the economy and the optimal ratio of liquidity to GDP depend on the structure of each economy, the technological complexities of goods and services, and the number of stages of their construction. Therefore, for each economy, a certain level of liquidity and money creation cannot be justified as a general rule, but the quantity of liquidity and money creation in each economy depends on the structural, technical conditions of the economy and commodities, speculative attacks, and foreign exchange market pressure. Therefore, expansionary monetary policies need to be adjusted in terms of whether or not the exchange rate is stabilized. Keywords: Financial Stability, Exchange Rate Jump, Dornbusch’s Overshooting Model, Global Financial Crisis, Econometric Modeling of Markov Switching Regime. Introduction Economic studies since 2000 have been more inclined to identify factors that affect the stability of banks, such as global financial crises, oil fluctuations, and exchange rate fluctuations. Economic sanctions and banking risks were noted. The oil crisis in recent decades is rooted in oil shocks that have occurred for a variety of reasons. Monetary and financial crises are rooted in a set of political and economic factors and market forces that affect the exchange rate in the country. Countries that have experienced these crises are witnessing stable current account deficits, increased values of imports relative to the net income from exports of goods and services in the country due to the devaluation of exports after devaluation of their domestic currency, and increased borrowing from foreign organizations that will be responsible for financing long-term projects and infrastructure of their countries (Nazar Por, Salimi, 2016). The important point is that a combination of different factors can cause these crises in the economy and resolving them requires several time periods. Of the reasons for such crises in the country are weakness of the country's monetary system, inability in the political arena and economic policy-making, loss of public confidence in the country's economic situation, and changing oil prices in the world markets that finally make people worried about the future economic situation of their country. If these problems are resolved, there will be no devaluation of the domestic currency. The theory of exchange rate jumps and their relationship to financial stability, together with its consequences, was first proposed by Dorenbusch (1982) and studied by other researchers, including Petti (1985), Adams and Grous (1986), and Grimler (1994). Dorenbusch (1982) believed that targeting the real exchange rate would affect production and price stability in two ways. On the one hand, stability of the nominal and real exchange rates will stabilize the total demand and on the other hand, the exchange rate through the supply side will affect the price level because the nominal exchange rate will affect prices through the costs of the imported intermediate goods. In other words, Dornbush believed that following the exchange rate rule would create stability in production on the one hand and destroy price stability on the other hand. Therefore, for the above reasons, he believed in the stability of the exchange rate, but accepted that prices would lose their stability by stabilizing the nominal exchange rate. Finally, he concluded that following the nominal exchange rate rule might be considered a good policy at some points but not at other times according to the economic requirements of any country. Due to the strong dependence of the country's economy on the banking system, the stability of the banking system will be doubly important; it is important to study the factors that disrupt this stability. Method and Data Given these issues, the present study examined the financial stability of the state banking system of Iran's economy by using econometric modeling of Markov switching regime and Dornbusch’s overshooting model during the years of 1984-2018 with regard to the impacts of exchange rate jumps and the global financial crisis. Findings Based on the results, the amounts of width from the origin in the first and second regimes were 0.03 and -4.05 and the variances of the disturbance components related to the first and second regimes were 0.73 and 3.51, respectively. In fact, the second regime (recession period) had more fluctuations than the first regime (boom period) in the present study. Also, based on the results of the economy's exposure to the recession period for the period under review, there were 18 recession periods versus 16 boom periods. The results showed that with the occurrence of negative oil shocks, the foreign exchange earnings of Iran's economy decreased and despite the currency price jumps, financial crises, and increasing credit risk, banking stability decreased due to high risk of banking activity (credit risk) and transfer. Imposing of this risk on other monetary and financial sectors, increasing the cost and complicating the process of receiving facilities, imposing this cost on other facilities and reducing the ability to provide credit, disruption of the monetary and banking system, reducing the efficiency of the banking system and lack of optimal allocation of financial resources to the required sectors, economic agents' pessimism about the monetary and banking system and increasing despair about the future, embezzlement of banks' rights by the influential people, and preventing these resources from entering the productive areas of the economy have all led to instability of the incomes of the state-owned banks. Conclusion and discussion It is often said that instability and liquidity flows should be avoided for price stability and even economic stability because if the growth of liquidity is much greater than the growth of production, this will lead to inflation and price growth according to the simple implications of some money theories. However, it should be noted that the level of liquidity and money creation in the economy and the optimal ratio of liquidity to GDP depend on the structure of each economy, technological complexities of goods and services, and number of their construction stages. Hence, for each economy, a certain level of liquidity and money creation cannot be justified as a general rule, but the quantity of liquidity and money creation in each economy depend on the structural and technical conditions of the economy and commodities, speculative attacks, and foreign exchange market pressure. Therefore, expansionary monetary policies need to be adjusted in terms of whether or not the exchange rate stabilizes.

https://amf.ui.ac.ir/article_26589_15fe0c46176235a22b435fb021cbdb64.pdf