The main goal of liberalizing markets, which has been followed by most developing states in the past decades, is to potentiate domestic saving, attract foreign capital, and improve efficiency of financial resources. This paper studies impact of financial liberalization on the stock market in the Iranian economy. To do this, seasonal data for the period of 1994-2008 have been studied using vector self-regression method as well as co-integration tests. The findings show that in the long term, liberalizing financial markets will have a positive impact on total price index of the stock market due to development of financial system, though it has no meaningful effect on total price index of the stock market in the short run.
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