www.ccsenet.org/ijef International Journal of Economics and Finance Vol. 4, No. 3; March 2012 Published by Canadian Center of Science and Education 97 Examining the Effect of Selective Macroeconomic Variables on The Stock Exchange’s Depth and Breadth (Case Study: Tehran Stock Exchange) Dr. Saeed Fathi School of Administrative Sciences and Economics, University of Isfahan Daneshgah Street, Isfahan, Iran Tel: 98-913-1669950 E-mail: fathiresearch@yahoo.com Dr. Majid Sameti School of Administrative Sciences and Economics, University of Isfahan Daneshgah Street, Isfahan, Iran Tel: 98-913-3163081 E-mail: p_samety@hotmail.com Bagher Asgarnezhad Nouri School of Administrative Sciences and Economics, University of Isfahan Daneshgah Street, Isfahan, Iran Tel: 98-914-9681746 E-mail: b.asgarnezhad@gmail.com Sharif Shekarchizadeh Esfahani (Corresponding author) School of Management, University of Texas at Dallas 800 West Campbell Rd. Richardson, TX, USA Tel: 1-972-6038599 E-mail: sharif_shekarchi@yahoo.com Received: November 19, 2011 Accepted: January 29, 2012 Published: March 1, 2012 doi:10.5539/ijef.v4n3p97 URL: http://dx.doi.org/10.5539/ijef.v4n3p97 Abstract One of the features of developed countries is the existence of effective financial markets, which not only play an important role in the economy, but also facilitate economic growth and a country's development. Stock exchangedevelopment is affected by many macroeconomic variables. In this survey, we mainly attempt to examine the effect of macroeconomic variables on the development of the Tehran Stock Exchange. To do so, national income, investment rate, financial intermediary development and macroeconomic instability are considered as macroeconomic variables, and depth and breadth are considered as indices of the stock exchange development. Necessary data were collected seasonally during 1998-2007. For statistical analysis, we first examined stationary of the variables by augmenting the Dickey-Fuller Unit Root Test. Then, the Johansen co-integration Test was used to estimate co-integration vectors. Finally, we used the Vector Error Correction Model to test the research model. Findings suggest that national income and investment rates have a positive, significant effect on the depth and breadth of the stock exchange. Also, financial intermediary development and macroeconomic instability have a negative, significant effect on the depth and breadth of the stock exchange. Keywords: Capital market, Stock exchange development, Stock exchange depth, Stock exchange breadth, Macroeconomic variables JEL: E20, G11, F31 1. Introduction More and more investigations on stock exchange seem necessary with due attention to the important and vital role of