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Impact of Geopolitical Risks on Herding Behavior in Some MENA Stock Markets

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  • Imed Medhioub

    (College of Business, Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh P.O. Box 5701, Saudi Arabia)

Abstract

In this study, we examine the herding behavior in MENA stock markets in response to global geopolitical risk by using daily data, ranging from 4 January 2011 to 31 December 2023, on stock-listed companies in some MENA countries (Egypt, Jordan, Lebanon, Morocco, Saudi Arabia, and Tunisia) and the daily geopolitical risk index. In our analysis, we consider that investors’ behavior varies depending on the global economic and political period conditions. We use quantile regression analysis to investigate the effect of asymmetry on herding behavior among investors during bearish and bullish market conditions. The results show that herding behavior is evident in all stock markets, except for the Lebanon market, at a lower 5% quantile during down-market periods. A significant estimated coefficient of geopolitical risk was detected on the dispersion of stock returns, except for the stock markets of Morocco and Saudi Arabia. We found that a high level of geopolitical risk contributes to an increase in dispersion in the Lebanese stock market whereas it is associated with a high probability of increasing herding in the Jordanian and Tunisian stock markets. This paper contributes to the existing literature by explaining the impact of geopolitical risks on herding behavior in six MENA countries. This can be considered to be an empirical contribution as we propose to introduce the effect of geopolitical risks on the basis model of herding. Our findings can have significant implications for investors and policymakers in financial markets.

Suggested Citation

  • Imed Medhioub, 2025. "Impact of Geopolitical Risks on Herding Behavior in Some MENA Stock Markets," JRFM, MDPI, vol. 18(2), pages 1-14, February.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:85-:d:1583881
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    References listed on IDEAS

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    1. Saadaoui Mallek, Ray & Albaity, Mohamed & Molyneux, Philip, 2022. "Herding behaviour heterogeneity under economic and political risks: Evidence from GCC," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 345-361.
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    8. Indārs, Edgars Rihards & Savin, Aliaksei & Lublóy, Ágnes, 2019. "Herding behaviour in an emerging market: Evidence from the Moscow Exchange," Emerging Markets Review, Elsevier, vol. 38(C), pages 468-487.
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