The Impact of Oil Price Volatility on Banking Stocks: Evidence from Iran

This study analyzed how crude oil prices affect the stock prices of five major Iranian banks that invest in the oil and petrochemical industries. The exchange rate was also considered in our analysis. We used daily data from 2011 to 2020 and examined timevarying and fixed spillovers in banking stocks using the methods of Diebold and Yilmaz (2012). Our findings suggest that the exchange rate has the greatest impact on bank fluctuations due to the unprecedented sanctions faced by Iran during the study period. These sanctions limited Iran's access to global markets, reducing economic growth and investment opportunities. Consequently, the impact of oil price changes on banking stocks and other economic indicators decreased. To address these challenges, Iran can diversify its economy by investing in technology and production, strengthen the banking sector through improved regulations, transparency, and accountability, and improve exchange rate management. Additionally, Iran can monitor and reduce risks associated with oil price fluctuations through developing contingency plans, improving risk management systems, and increasing cooperation between the government and banking sector. Overall, this study emphasizes the importance of considering the potential effects of economic sanctions when analyzing the relationship between oil prices, bank stocks, and other economic indicators in Iran. Taking these steps can help Iran better manage the impact of oil price fluctuations and economic sanctions, and create a more stable and resilient economy.