The purpose of this paper is to investigate the MENA’s potential for portfolio diversification benefits by examining long run equity linkages with daily data over the 1998-2004 periods. Our analysis is based on several co-integration analyses and an extension of Akdogan measures of financial integration. We first compare financial integration with the EU and the US. Results suggest that the MENA region is growingly segmented from both regions. Although integration is relatively higher with the EMU, diversification benefits for both EU and US investors are possible since segmentation levels appear converging. At the country level, our analysis displays no evidence of regional integration, thereby suggesting potential for local diversification. Integration scores also show that Egypt and Turkey should be relatively more appealing for the US investor and Israel, and Jordan and Morocco for the EU investor. Lebanon and Tunisia are two specific cases displaying opposite dynamics. A moving average analysis also shows that financial events, internal reforms and political shocks do not affect the region stock market linkages homogeneously; real economic integration seems to diminish financial segmentation. Finally, we approach the issue of short run linkages with a VAR-VECM methodology. Impulse response analysis shows that all markets seem to respond to each other, but that Turkey is unaffected by shocks occurring in the other markets. This ultimately raises questions on the dynamics of intra-regional contagion.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.