Stock Market Turmoil: Worldwide Effects of Middle East Conflicts
AbstractThis paper analyzes the effect of recent political conflicts in the Middle East on stock markets worldwide. In particular, it studies how political instabilityâmainly due to the war in Iraqâhas affected the long-term volatility of stock markets, using two approaches, Inclan and Tiao's (1994) iterative cumulative sum of squares algorithm and wavelet-based variance analysis, to detect structural breakpoints in volatility. Controlling for conditional heteroskedasticity and serial correlation in returns, the paper finds that the ongoing Middle East conflicts have had an effect primarily on the stock markets of countries in the Middle East and in emerging Asian countries (e.g., Turkey, Morocco, Egypt, Pakistan, and Indonesia). Further evidence from an international version of the capital asset pricing mechanism shows that political instability in the Middle East has had a heterogeneous effect on the sensitivity of stock returns to market and currency risks.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 43 (2007)
Issue (Month): 3 (June)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
ICAPM; ICSS algorithm; volatility breakpoints; wavelets;
Other versions of this item:
- Viviana Fernandez, 2005. "Stock Markets Turmoil: Worldwide Effects of Middle East Conflicts," Documentos de Trabajo 215, Centro de Economía Aplicada, Universidad de Chile.
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