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Structural Changes in the Middle East Stock Markets: The case of Israel and Arab Countries

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    Abstract

    This paper tests for structural changes in the price indices of four stock markets in the Middle East region, namely, Egypt, Turkey Jordan, Morocco and Israel. The Innovational Outlier (IO) model and Additive Outlier (AO) model indicate that all variables show evidence of non-stationarity, I(1), even with structural change. Moreover, the coefficients for all dummy variables such as intercept, slope and time of the break are found to be significant and all have the right signs. The endogenously determined times of the breaks for all variables coincides with observed real events for each country, like Asian crises, fluctuation in oil prices and the political conflict in the Middle East.

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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012205.pdf
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    Bibliographic Info

    Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp05-22.

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    Length: 13 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:uow:depec1:wp05-22

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    Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
    Phone: +612 4221-3659
    Fax: +612 4221-3725
    Web page: http://business.uow.edu.au/econ/index.html
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    Keywords: Structural changes; Middle East stock markets; Israel; Arab countries;

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    1. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
    2. Patrick J. Wilson & Richard Gerlach & Ralf Zurbruegg, 2003. "Potential Diversification Benefits In The Presence Of Unknown Structural Breaks: An Australian Case Study," Australian Economic Papers, Wiley Blackwell, vol. 42(4), pages 442-453, December.
    3. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Universite de Montreal, Departement de sciences economiques.
    4. Vogelsang, T.I. & Perron, P., 1991. "Nonstationary and Level Shifts With An Application To Purchasing Power Parity," Papers 359, Princeton, Department of Economics - Econometric Research Program.
    5. Ali F. Darrat & Khaled Elkhal & Sam R. Hakim, 2000. "On the Integration of Emerging Stock Markets in the Middle East," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 119-129, December.
    6. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
    7. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
    8. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio L., 2006. "Stock market development and internationalization: Do economic fundamentals spur both similarly?," Journal of Empirical Finance, Elsevier, vol. 13(3), pages 316-350, June.
    9. Ben-David, Dan & Papell, David, 1995. "Slowdowns and Meltdowns: Post-war Growth Evidence from 74 Countries," CEPR Discussion Papers 1111, C.E.P.R. Discussion Papers.
    10. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-70, October.
    11. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
    12. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
    13. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 237-50, July.
    14. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
    15. Anindya Banerjee & Robin L. Lumsdaine & James H. Stock, 1990. "Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence," NBER Working Papers 3510, National Bureau of Economic Research, Inc.
    16. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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