Volatility Spillovers and Comovements between MENA Markets during Political Turbulent Times

This chapter explores the relationship between MENA indices during political crisis periods. In other words, we attempt to analyze the comovements and the volatility spillovers during the onset of dramatic country-specific events. For this end, we use daily data of 11 selected indices over the period spanning from March 18, 2005 to March 18, 2016. Methodologically, we assess the extent of volatility transmission among MENA markets indices using the generalized vector autoregressive framework proposed by Diebold and Yilamaz (2012). For the comovements among MENA indices, the wavelet coherence analysis tools and the overlap wavelet cross-correlation approach are proposed. Some interesting findings emerged from this analysis. First, our results reveal moderate comovement behavior between the selected MENA indices at different frequency bands and over time. This result indicates that the emerging markets are more feigned by local political and economic crisis rather than international political unrests. Second, the comovement behavior is more pronounced during the financial turmoil and the direction of volatility transmission seems to be affected by political events.