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Go Long or Short in Pyramids? News from the Egyptian Stock Market

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Author Info
Andreas Billmeier
Isabella Massa

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Abstract

Similar to other emerging economies, the Egyptian stock market has recently experienced a remarkable run-up but also a major downturn. This paper analyzes the stock market from two angles. First, it compares the performance of the major stock price index with its underlying fundamentals. Second, it explores the relationship between the Egyptian and other stock markets. The paper finds that (i) there is some evidence against a stable relationship between the Egyptian index and its fundamental value; and (ii) short-term correlations and long-term cointegrating relations provide conflicting signals on the value of Egyptian stocks as a means of diversification.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/179.

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Length: 27 pages
Date of creation: 24 Jul 2007
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Handle: RePEc:imf:imfwpa:07/179

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Keywords: Working Paper ; Stock markets ; Egypt ; Financial integration ; Stock prices ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kleidon, Allan W, 1986. "Variance Bounds Tests and Stock Price Valuation Models," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 953-1001, October. [Downloadable!] (restricted)
  2. Marsh, Terry A & Merton, Robert C, 1986. "Dividend Variability and Variance Bounds Tests for the Rationality ofStock Market Prices," American Economic Review, American Economic Association, vol. 76(3), pages 483-98, June. [Downloadable!] (restricted)
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  3. Diba, Behzad T & Grossman, Herschel I, 1988. "The Theory of Rational Bubbles in Stock Prices," Economic Journal, Royal Economic Society, vol. 98(392), pages 746-54, September. [Downloadable!] (restricted)
  4. Franklin Allen & Douglas Gale, 2002. "Asset Price Bubbles and Stock Market Interlinkages," Center for Financial Institutions Working Papers 02-22, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  5. Martin Petri & Tahsin Saadi-Sedik, 2006. "The Jordanian Stock Market--Should You Invest in it for Risk Diversification or Performance?," IMF Working Papers 06/187, International Monetary Fund. [Downloadable!]
  6. Andreas Billmeier & Isabella Massa, 2007. "What Drives Stock Market Development in the Middle East and Central Asia--Institutions, Remittances, or Natural Resources?," IMF Working Papers 07/157, International Monetary Fund. [Downloadable!]
  7. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  8. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June. [Downloadable!] (restricted)
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  9. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November. [Downloadable!] (restricted)
  10. Topol, Richard, 1991. "Bubbles and Volatility of Stock Prices: Effect of Mimetic Contagion," Economic Journal, Royal Economic Society, vol. 101(407), pages 786-800, July. [Downloadable!] (restricted)
  11. Chris Brooks & Apostolos Katsaris, 2003. "Rational Speculative Bubbles: An Empirical Investigation of the London Stock Exchange," Bulletin of Economic Research, Blackwell Publishing, vol. 55(4), pages 319-346, October. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Billmeier & Isabella Massa, 2007. "What Drives Stock Market Development in the Middle East and Central Asia--Institutions, Remittances, or Natural Resources?," IMF Working Papers 07/157, International Monetary Fund. [Downloadable!]
  2. Andreas Billmeier & Rania A. Al-Mashat, 2007. "The Monetary Transmission Mechanism in Egypt," IMF Working Papers 07/285, International Monetary Fund. [Downloadable!]
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