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Capital Market Integration in the Middle East and North Africa

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Author Info

  • Thomas Lagoarde-Segot
  • Brian M. Lucey

Abstract

This paper studies capital market integration in Middle Eastern and North African (MENA) countries and its implications for international portfolio investment allocation. Starting with four cointegration methodologies, we significantly reject the hypothesis of a stable, long-run bivariate relationship between each of these markets and the European Monetary Union (EMU), the United States, and a regional benchmark. This indicates the existence of significant diversification opportunities for three categories of investors (EMU, world, and regional investors). A recursive analysis based on Barari (2004) suggests that recently, the MENA markets have started to move toward international financial integration. Investigating the effect of selected financial, economic, and political events on such a process, we extend the methodology and find that the markets react heterogeneously to the different categories of shocks. They should therefore not be treated as a bloc for global allocation purposes. Finally, after adjusting the integration levels by relative market capitalization, Israel and Turkey are the most promising markets in the region, followed by Egypt, Jordan, and Morocco. Tunisia and Lebanon seem to be lagging behind.

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File URL: http://mesharpe.metapress.com/link.asp?target=contribution&id=B3441855U285305U
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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 43 (2007)
Issue (Month): 3 (June)
Pages: 34-57

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Handle: RePEc:mes:emfitr:v:43:y:2007:i:3:p:34-57

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: MENA markets; portfolio diversification; stock market integration; time-varying methods;

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Citations

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Cited by:
  1. Thomas Lagoarde-Segot & Brian M. Lucey, 2006. "Portfolio allocations in the Middle East and North Africa," The Institute for International Integration Studies Discussion Paper Series iiisdp141, IIIS.
  2. Billmeier, Andreas & Massa, Isabella, 2008. "Go long or short in pyramids? News from the Egyptian stock market," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 949-970, December.
  3. Kannan Thuraisamy, . "Intra-market Sovereign Linkages of Latin American International Bonds," Financial Econometics Series 2013_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  4. Korkmaz, Turhan & Çevik, Emrah İ. & Atukeren, Erdal, 2012. "Return and volatility spillovers among CIVETS stock markets," Emerging Markets Review, Elsevier, vol. 13(2), pages 230-252.
  5. World Bank, . "Middle East and North Africa Economic Developments and Prospects, 2008 : Regional Integration for Global Competitiveness," World Bank Other Operational Studies 12949, The World Bank.
  6. Brian M Lucey & Cal Muckley, 2011. "Robust Global Stock Market Interdependencies," The Institute for International Integration Studies Discussion Paper Series iiisdp353, IIIS.
  7. Lagoarde-Segot, Thomas & Lucey, Brian M., 2007. "International portfolio diversification: Is there a role for the Middle East and North Africa?," Journal of Multinational Financial Management, Elsevier, vol. 17(5), pages 401-416, December.
  8. Hüseyin Dağli; & Uğur Sivri & Semra Bank, 2012. "International portfolio diversification opportunities between Turkey and other emerging markets," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 5(1), pages 4-23.

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