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Stochastic Trends and Stock Prices in Emerging Markets: The Case of Middle East and North Africa Region

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  • Lokman Gunduz
  • Mohammed Omran

Abstract

In this paper, the individual stochastic structure of a log of weekly stock indices from Turkey, Israel, Egypt, Morocco and Jordan of MENA markets are investigated. Results from different unit root tests indicate that all five series seem to contain a stochastic trend and thus are nonstationary in levels. Presence of a unit root implies that shocks to stock prices are permanent and consequently, stock prices may not be predictable. Tests are also conducted to examine the common stochastic trends in a system of these emerging stock prices. No evidence of cointegration is detected in these emerging markets. Therefore, the stock markets of MENA region are segmented and do not exhibit any long-run co-movements. This in turn implies the existence of potential gains from international stock market diversification.

Suggested Citation

  • Lokman Gunduz & Mohammed Omran, 2001. "Stochastic Trends and Stock Prices in Emerging Markets: The Case of Middle East and North Africa Region," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 5(17), pages 1-22.
    • Handle: RePEc:bor:iserev:v:5:y:2001:i:17:p:1-22
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    Cited by:

    1. Bley, Jorg & Chen, Kim Heng, 2006. "Gulf Cooperation Council (GCC) stock markets: The dawn of a new era," Global Finance Journal, Elsevier, vol. 17(1), pages 75-91, September.
    2. Thomas Lagoarde-Segot & Brian M. Lucey, 2007. "Capital Market Integration in the Middle East and North Africa," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(3), pages 34-57, June.
    3. Bley, Jorg, 2011. "Are GCC stock markets predictable?," Emerging Markets Review, Elsevier, vol. 12(3), pages 217-237, September.
    4. Seema Wati Narayan & Mobeen Ur Rehman & Yi-Shuai Ren & Chaoqun Ma, 2023. "Is a correlation-based investment strategy beneficial for long-term international portfolio investors?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-26, December.
    5. Zein Aidrous Irina Ahmed & Grigorievna Sofya Glavina, 2016. "IPO in the countries of the Gulf Cooperation Council," Miscellanea Geographica. Regional Studies on Development, Sciendo, vol. 20(3), pages 32-36, September.
    6. Narayan, Seema & Rehman, Mobeen Ur, 2021. "Can home-biased investors diversify interregionally in the long run?," Economic Modelling, Elsevier, vol. 97(C), pages 167-181.
    7. Bolbol, Ali A. & Fatheldin, Ayten & Omran, Mohammed M., 2005. "Financial development, structure, and economic growth: the case of Egypt, 1974-2002," Research in International Business and Finance, Elsevier, vol. 19(1), pages 171-194, March.
    8. Ezzat, Hassan, 2014. "Impact of Political Instability on Cointegration: Evidence from MENA Region Stock Markets during Pre and Post Egyptian Revolution Period," MPRA Paper 110566, University Library of Munich, Germany.

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