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Diversification prospects in Middle East and North Africa (MENA) equity markets: a synthesis and an update

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  • Olasupo Olusi
  • Haikal Abdul-Majid

Abstract

This study investigates the extent to which Eurozone and Middle East and North Africa (MENA) equity markets are integrated, to assess any potential diversification benefits across the two sets of markets. In addition to cointegration analysis, we analyse time-varying conditional correlations, which are then modelled as a smooth transition logistic trend model to permit the determination of the speed at which the two sets of markets are becoming more or less integrated. Optimal portfolios based on a combination of equity assets in both sets of markets are constructed to assess possible gains from diversification. We compare the performances of these portfolios using a variety of performance measures, taking into account the implications of higher moments of return distribution unlike several studies. Whilst our findings do not indicate Eurozone-MENA integration, there is mixed evidence on the correlation trends between the sets of markets. Moreover, the changes in correlations occur at a very slow pace. Overall, our analysis indicates the existence of diversification benefits in MENA equity markets.

Suggested Citation

  • Olasupo Olusi & Haikal Abdul-Majid, 2008. "Diversification prospects in Middle East and North Africa (MENA) equity markets: a synthesis and an update," Applied Financial Economics, Taylor & Francis Journals, vol. 18(18), pages 1451-1463.
  • Handle: RePEc:taf:apfiec:v:18:y:2008:i:18:p:1451-1463
    DOI: 10.1080/09603100701720450
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    References listed on IDEAS

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    Cited by:

    1. Marcel Aloy & Mohamed Boutahar & Karine Gente & Anne Péguin-Feissolle, 2013. "Long-run relationships between international stock prices: further evidence from fractional cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 45(7), pages 817-828, March.
    2. Awartani, Basel & Maghyereh, Aktham I. & Shiab, Mohammad Al, 2013. "Directional spillovers from the U.S. and the Saudi market to equities in the Gulf Cooperation Council countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 224-242.
    3. repec:spr:jqecon:v:16:y:2018:i:1:d:10.1007_s40953-016-0067-y is not listed on IDEAS
    4. A. Maghyereh & B. Awartani, 2012. "Return and volatility spillovers between Dubai financial market and Abu Dhabi Stock Exchange in the UAE," Applied Financial Economics, Taylor & Francis Journals, vol. 22(10), pages 837-848, May.
    5. Diyarbakirlioglu, Erkin, 2011. "Domestic and foreign country bias in international equity portfolios," Journal of Multinational Financial Management, Elsevier, vol. 21(5), pages 301-329.
    6. repec:ehu:cuader:30018 is not listed on IDEAS
    7. Souhir Chlibi & Fredj Jawadi & Mohamed Sellami, 2016. "Analyzing Heterogeneous Stock Price Comovements Through Hybrid Approaches," Open Economies Review, Springer, vol. 27(3), pages 541-559, July.

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