An empirical investigation of stock market behavior in the Middle East and North Africa

Abstract

This paper studies excess market returns in the relatively understudied financial markets of nine Middle Eastern and North African (MENA) countries within the context of three variants of the Capital Asset Pricing Model: the static international CAPM; the constant-parameter intertemporal CAPM; and a Markov-switching intertemporal CAPM which allows for the degree of integration with international equity markets to be time-varying. On the whole we find that: (1) Israel and Turkey are most strongly integrated with world financial markets; (2) in most other MENA markets examined there is primarily local pricing of risk and evidence of a positive risk-return trade-off; and (3) there is substantial time variation in the weights on local and global pricing of risk for all of these markets. Our results suggest that investment in many of these markets over the sample studied would have provided returns uncorrelated with global markets, and thus would have served as financial instruments with which portfolio diversification could have been improved.

Asymmetric Effects in Emerging Stock Markets - The Case of Iran Stock Market

“…France, Germany, US and Japan, Cheng et al (2010) for Bahrain, Kuwait, Oman, Saudi Arabia, Egypt, Jordan and Turkey, Krishnan and Mukherjee (2010) for India, Sabiruzzaman et al (2010) for Hong Kong and Tan and Islam Khan (2010) for Malaysia stock markets find out the existence of leverage effects in volatility modelling. On the other hand, this finding is not unique to our study as many other studies have reached similar conclusions (Rousan and Al-khouri (2005) for Amman, Brooks (2007) for Chilli, Saudi Arabia and Bahrain, Mun et al (2008) for Malaysia, Bahadur (2008) for Nepal, Alagidede and Panagiotidis (2009) for Tunisia and Zimbabwe, Jayasuriya et al (2009) for Brazil, Chile, Indonesia, Pakistan and Taiwan, Saeidi and Koohsarian (2010) for The Iranian stock market, Cheng et al (2010) for Morocco, Charles (2010) for the UK stock markets). On the whole it can be noted that the asymmetric volatility (negative relationship between stock returns movements and future volatility) is not applicable to Iran market as an emerging stock market.…”

“…Even though the asymmetric volatility phenomenon is well documented in developed and emerging stock markets, there is some evidence indicating lack of asymmetric behaviour particularly in emerging stock markets (Rousan and Al-khouri (2005), Brooks (2007), Mun et al (2008), Bahadur (2008), Alagidede andPanagiotidis (2009), Jayasuriya et al (2009) and Cheng et al (2010)). Mehrara and Abdoli (2006) using the time-varying volatility model and employing the daily Iranian stock market index over the period of March 30 1999 to May 5 2003 shows that responses of stock returns to good and bad news are symmetric.…”

Regional and global spillovers and diversification opportunities in the GCC equity sectors

“…Chiou, 2008;Middleton et al, 2008;Bekaert et al, 2009;You andDaigler, 2010, Berger et al, 2011, among others). On the other hand, fewer studies including Lagoarde-Segot and Lucey (2007), Yu and Hassan (2008), Cheng et al (2010), Mansourfar et al (2010), Arouri and Rault (2012) and Chau et al (2014) have examined the stock markets in the Middle East and North Africa (MENA) region including the GCC countries. These studies generally suggest that MENA stock markets offer significant diversification potential for global investors.…”

“…An emerging strand of the literature on international diversification has also looked at the cash-and oil-rich Gulf Arab stock markets (e.g., Hassan et al, 2003;Yu and Hassan, 2008;Cheng et al, 2010;Mansourfar et al, 2010). Table 2 provides a summary of these studies which specifically examine the financial integration of GCC stock markets with world markets.…”

“…Focusing on the portfolio diversification aspects, Yu and Hassan (2008) show that GCC markets are largely segmented from international markets, while Cheng et al (2010) observe that these markets offer returns uncorrelated with global markets. Similarly, Mansourfar et al (2010) find that the oil-producing GCC countries provide greater international diversification benefits than the non-oil producing MENA countries.…”