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Financial Cointegration and the Vector Error Correction Model: The Case of MENA Countries

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  • Kalai Lamia

    (Universit Tunis El Manar, Tunisia.)

  • Kasraoui Naziha

    (Universit Tunis El Manar, Tunisia.)

Abstract

The aim of this paper is to study financial integration between emerging MENA countries and developed countries. We study short-term price series dynamics using Johansen's (1991) multivariate cointegration test to determine the number of cointegration vectors and Granger's (1987) causality test to determine causality direction across markets. The VECM model combines long-term cointegration modeling with short-term dynamics to determine equilibrium return rate. The results point to the presence of two long-term cointegration vectors between MENA and developed countries, while causality direction is bidirectional. The VECM results suggest the presence of a short-term cointegration between these countries. VECM's residuals and the Wald test confirm the robustness of our model.

Suggested Citation

  • Kalai Lamia & Kasraoui Naziha, 2019. "Financial Cointegration and the Vector Error Correction Model: The Case of MENA Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 160-168.
    • Handle: RePEc:eco:journ1:2019-01-20
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    References listed on IDEAS

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    Cited by:

    1. Rehman, Mobeen Ur & Ahmad, Nasir & Shahzad, Syed Jawad Hussain & Vo, Xuan Vinh, 2022. "Dependence dynamics of stock markets during COVID-19," Emerging Markets Review, Elsevier, vol. 51(PB).

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    More about this item

    Keywords

    Financial market; Financial cointegration; Causality; VECM; MENA countries.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G1 - Financial Economics - - General Financial Markets

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