The Risk-return Trade-off in Emerging Stock Markets: Evidence from Saudi Arabia and Egypt

Abdalla, Suliman Zakaria Suliman

doi:10.5539/ijef.v4n6p11

Cited by 5 publications

(3 citation statements)

References 39 publications

(39 reference statements)

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“…A positive (and statistically significant) coefficient λ implies that returns carry a risk premium, and vice versa. In the context of stock markets, until recently a number of studies have applied different versions of GARCH-M models [e.g., Abdalla (2012) and Guo and Neely (2008)].…”

Section: Methodsmentioning

confidence: 99%

The impact of MILA market-maker facility on volatility of the Colombian stock market

Lukanima

Gómez-Bravo

Sanchez-Barrios

2021

Rev. contab. finanç.

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In 2014, the Colombian Stock Exchange commenced the implementation of its market-maker facility (MMF), aiming at improving market efficiency. This paper examines the impact of the MMF program on three volatility-related aspects: volatility persistence, risk premium, and information asymmetry. This paper provides new insights about the anticipated outcomes of Mercados Integrados Latinoamericanos (MILA) reforms, specifically the MMF on the volatility of the Colombian stock market. This topic has not been fully addressed in the existing literature. This study, therefore, provides useful information for regulators and policy makers, in endeavors to address key issues raised during the World Economic Forum (WEF) of 2016. This paper poses a challenge to policy makers and stock market regulators in Colombia to revisit the reform program and address the factors limiting the effectiveness of market reforms. This paper provides justification for replicating the study to cover other MILA countries due to existing differences in some domestic market policies and structures. The paper employs conditional variance models for measuring volatility persistence, risk premia, and information asymmetry. The models are employed on the COLCAP stock index (Colombia) observed from January 17, 2008 to May 30, 2019. Observations are divided into two samples - pre- and post-MMF. This paper provides evidence of the impacts of the MMF reforms in the Colombian stock market. Specifically, the MMF seems to have an impact on the following aspects: (i) the magnitude in which current returns depend on previous returns has increased; (ii) investment portfolio returns, which are generally low, have declined after the MMF, leading to less risk compensation; (iii) the MMF does not seem to have affected the volatility of market returns and information asymmetry; (iv) volatility persistence increased in magnitude.

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Section: Methodsmentioning

confidence: 99%

The impact of MILA market-maker facility on volatility of the Colombian stock market

Lukanima

Gómez-Bravo

Sanchez-Barrios

2021

Rev. contab. finanç.

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“…They concluded the absence of causality in Pakistan and Korea but suggested the availability of such causality in India and the Philippines. Furthermore, Abdalla (2012) and Rahman & Uddin (2009) demonstrated that there is no causal relationship between foreign exchange market performance and stock returns in emerging capital markets. Phylaktis & Ravazzolo (2003) studied long-term and short-term dynamics of the relationship among the stock market and the exchange rates in Pacific Basin countries during 1980-1988 period and concluded that the two variables are positively co-related.…”

Section: Empirical Findingsmentioning

confidence: 99%

The Effect of Foreign Exchange Rates on the Stock Market Performance in Sri Lanka

Gooneratne

Silva

2022

J. Mgt. Matters

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All the nations around the world are interrelated and interdependent through economic, cultural, social, and, technological means. The foreign exchange market and the stock market are the driving forces of global interdependency. Thus, the study aims to analyze the nature of the relationship between foreign exchange rates and the stock market performance in the Sri Lankan context. The study adopted a quantitative research approach where publicly available secondary data from the Central Bank of Sri Lanka and the Colombo Stock Exchange were used for the analysis. All Share Price index was used as the dependent variable and the monthly average exchange rates; USD/LKR, GBP/LKR, EUR/LKR, JPY/LKR, and INR/LKR were used as the independent variables. The study gathered data for 19 years from Jan'2000 -Jan'2019, where the data set was tested for unit root, and given the non-stationary nature of data; the Johansen co-integration rank test was applied. The study findings depict a non-significant relationship between the exchange rates and the stock market performance in the Sri Lankan context emphasizing the absence of a long-term relationship. This is of paramount importance for both local and foreign investors given the decisions on foreign exchange risk hedging and the portfolio performance depend on this relationship. To the best of our knowledge, this is one of the early studies in Sri Lanka to identify the association between exchange rates and stock returns over a period of 19 years.

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“…The results demonstrated that the volatility of KSA stock market returns have decreased over years, and that correlations between markets have increased. Abdalla, (2012) studied the risk-return trade-off in emerging stock markets (Evidence from KSA & Egypt). The results show that the dynamic risk-return relationship is quite different between the Saudi and the Egyptian markets.…”

Section: Introductionmentioning

confidence: 99%

Volatility interdependences in the Saudi stocks market

Eltahir

Sallam

Osman

et al. 2019

EJEM

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This study attempts to answer whether there is an interaction and volatility between the variances of the stock returns in the Saudi market. The sample represents daily stock prices of five sectors i.e. basic materials, banking, services, food, and transportation (SABIC, Al Rajhi, Etisalat, Almarai, and Al Bahri, respectively) from 2011 to 2016. The study applied the M-GARCH-DVEC methodology to estimate the variances of stock returns considering the interactions of returns. Findings/Originality: The results of the analysis show that there are fluctuations in the returns of stocks due to their interaction, but they are very slight as the results of the general trend of long-term variances. The study concludes that the variances between SABIC and Al Rajhi stocks are more stable compared to those of Etisalat, Almarai, and Al Bahri, which are relatively volatile. The results reveal that the variances in stock market returns are more likely to depend on internal factors.

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The Risk-return Trade-off in Emerging Stock Markets: Evidence from Saudi Arabia and Egypt

Cited by 5 publications

References 39 publications

The impact of MILA market-maker facility on volatility of the Colombian stock market

The impact of MILA market-maker facility on volatility of the Colombian stock market

The Effect of Foreign Exchange Rates on the Stock Market Performance in Sri Lanka

Volatility interdependences in the Saudi stocks market

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