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Testing for “contagion” of the subprime crisis on the Middle East and North African stock markets : A Markov Switching EGARCH approach

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Author Info

  • Wajih Khallouli

    ()
    (Ecole Supérieure des Sciences Economiques et Commerciales de Tunis - Université de Tunis)

  • René Sandretto

    ()
    (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)

Abstract

In this paper, we investigate whether the recent financial turmoil which arose in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson, 1999) rather than shift-contagion (Rigobon, 2003). Then, we explicitly define financial “contagion” in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistence of recession characterised by low mean/high variance regimes which coincides with the third phases of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00522683.

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Date of creation: 2012
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Publication status: Published, Journal of Economic Integration, 2012, 27, 1, pp. 134-166
Handle: RePEc:hal:journl:halshs-00522683

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Keywords: subprime crisis; Contagion; MENA stock markets; Markov switching EGARCH model;

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Citations

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Cited by:
  1. Kaabia, Olfa & Abid, Ilyes & Guesmi, Khaled, 2013. "Does Bayesian shrinkage help to better reflect what happened during the subprime crisis?," Economic Modelling, Elsevier, vol. 31(C), pages 423-432.
  2. Elie I Bouri, 2013. "Correlation and Volatility of the MENA Equity Markets in Turbulent Periods, and Portfolio Implications," Economics Bulletin, AccessEcon, vol. 33(2), pages 1575-1593.
  3. Guyot, Alexis & Lagoarde-Segot, Thomas & Neaime, Simon, 2014. "Foreign shocks and international cost of equity destabilization. Evidence from the MENA region," Emerging Markets Review, Elsevier, vol. 18(C), pages 101-122.
  4. Eli Bouri & Andre Eid & Imad Kachacha, 2014. "The Dynamic Behaviour and Determinants of Linkages among Middle Eastern and North African Stock Exchanges," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 1-22, March.

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