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Rational speculative bubbles in MENA stock markets

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Author Info

  • Jung-Suk Yu
  • M. Kabir Hassan

Abstract

Purpose – The purpose of this paper is to examine the existence of rational speculative bubbles in the Middle East and North African (MENA) stock markets. Design/methodology/approach – To complement shortcomings of the traditional bubble tests, such as unit root tests and cointegration tests, mainly relying on expectations of future steams of dividends, the authors employ fractional integration tests and duration dependence tests. Findings – Despite recent extreme fluctuations of MENA stock markets, fractional integration tests built on autoregressive fractionally integrated moving average models do not support the possibility of bubbles in the MENA stock markets. Similarly, duration dependence tests based on nonparametric Nelson-Aalen hazard functions not only reject the existence of bubbles but also support equality of hazard functions between domestic and the US-based investors without regard to the rapid financial liberalization and integration in the MENA stock markets. Originality/value – The reliable results of bubble tests of the MENA stock markets provide domestic and international investors as well as policy makers with invaluable benchmark to better understand the irregular and highly fluctuating stock market behaviors of the MENA stock markets compared to other developed and emerging stock markets. For domestic and international investors, the formal analysis of MENA stock markets behavior including rational speculative bubbles will help them in their portfolio decisions and hedging purposes. Similarly, the empirical results of bubble tests in the paper will be also helpful to policymakers in MENA countries to take actions to improve the functioning of these dynamic markets.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

Volume (Year): 27 (2010)
Issue (Month): 3 (August)
Pages: 247-264

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Handle: RePEc:eme:sefpps:v:27:y:2010:i:3:p:247-264

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Related research

Keywords: Economic growth; Middle East; North Africa; Stock markets;

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Cited by:
  1. Deev, Oleg & Kajurova, Veronika & Stavarek, Daniel, 2013. "Testing rational speculative bubbles in Central European stock markets," MPRA Paper 46582, University Library of Munich, Germany.

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