Stock Markets Turmoil: Worldwide Effects of Middle East Conflicts
In this article, we analyze the impact of recent political conflicts in the Middle East on stock markets worldwide. In particular, we study how political instability––mainly due to the war in Iraq––has affected long-term volatility of stock markets. In doing so, we utilize two approaches to detecting structural breakpoints in volatility: Inclan and Tiao’s Iterative Cumulative Sum of Squares (ICSS) algorithm and wavelet-based variante analysis. After controlling for conditional heteroskedasticity and serial correlation in returns, we conclude that Middle East conflicts have had an impact primarily on the stock markets of countries in that region and emerging Asian countries (e.g., Turkey, Morocco, Egypt, Pakistan, and Indonesia). Further evidence, from an international version of the CAPM, shows that political instability in the Middle East has increased the sensitivity of stock markets to exchange rate risk and, to a lesser extent, to market risk (e.g., Pakistan and Spain).
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ramsey, J.B., 2002. "Wavelets in Economics and Finance: Past and Future," Working Papers 02-02, C.V. Starr Center for Applied Economics, New York University.
- Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-34, April.
- Gençay, Ramazan & Selçuk, Faruk & Whitcher, Brandon, 2001. "Differentiating intraday seasonalities through wavelet multi-scaling," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 289(3), pages 543-556.
- Ramsey James B., 2002. "Wavelets in Economics and Finance: Past and Future," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(3), pages 1-29, November.
- Lin Shinn-Juh & Stevenson Maxwell, 2001. "Wavelet Analysis of the Cost-of-Carry Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(1), pages 1-17, April.
- Ser-Huang Poon & Clive W.J. Granger, 2003. "Forecasting Volatility in Financial Markets: A Review," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 478-539, June.
- Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 33-55, March.
- Connor Jeff & Rossiter Rosemary, 2005. "Wavelet Transforms and Commodity Prices," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-22, March.
When requesting a correction, please mention this item's handle: RePEc:edj:ceauch:215. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.