Stock Markets Turmoil: Worldwide Effects of Middle East Conflicts
AbstractIn this article, we analyze the impact of recent political conflicts in the Middle East on stock markets worldwide. In particular, we study how political instability––mainly due to the war in Iraq––has affected long-term volatility of stock markets. In doing so, we utilize two approaches to detecting structural breakpoints in volatility: Inclan and Tiao’s Iterative Cumulative Sum of Squares (ICSS) algorithm and wavelet-based variante analysis. After controlling for conditional heteroskedasticity and serial correlation in returns, we conclude that Middle East conflicts have had an impact primarily on the stock markets of countries in that region and emerging Asian countries (e.g., Turkey, Morocco, Egypt, Pakistan, and Indonesia). Further evidence, from an international version of the CAPM, shows that political instability in the Middle East has increased the sensitivity of stock markets to exchange rate risk and, to a lesser extent, to market risk (e.g., Pakistan and Spain).
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Bibliographic InfoPaper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 215.
Date of creation: 2005
Date of revision:
Other versions of this item:
- Viviana Fernandez, 2007. "Stock Market Turmoil: Worldwide Effects of Middle East Conflicts," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(3), pages 58-102, June.
- NEP-ALL-2006-01-24 (All new papers)
- NEP-CWA-2006-01-24 (Central & Western Asia)
- NEP-FMK-2006-01-24 (Financial Markets)
- NEP-RMG-2006-01-24 (Risk Management)
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