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Geopolitical Risk, Inflation, and Commodity Shocks in MENA: Evidence from a VECM-HAC-DCC Framework

Author

Listed:
  • Nesrine Mechri

    (UR CONFLUENCE : Sciences et Humanités (EA 1598) - UCLy - UCLy (Lyon Catholic University), ESDES - ESDES, Lyon Business School - UCLy - UCLy - UCLy (Lyon Catholic University))

  • Saker Sabkha

    (LEGO - Laboratoire d'Economie et de Gestion de l'Ouest - UBS - Université de Bretagne Sud - UBO EPE - Université de Brest - IMT - Institut Mines-Télécom [Paris] - IBSHS - Institut Brestois des Sciences de l'Homme et de la Société - UBO EPE - Université de Brest - UBL - Université Bretagne Loire - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris])

Abstract

This paper examines how macro conditions shape equity returns across 13 Middle East and North Africa markets using monthly data from January 2016 to June 2025. A compact VECM-HAC-DCC framework preserves long-run relations, controls for heteroskedasticity, and maps time variation in correlations. At the 5 percent level, geopolitical risk predicts standardized returns in 4 of 13 markets and remains after false-discovery control in two oil-exporting, USD-pegged markets. Inflation predicts only in Turkey and survives FDR. A commodity factor extracted from oil and gold is episodic, with significance concentrated in Jordan. Dynamic-correlation paths reveal regimes aligned with identifiable stress periods. The evidence translates into implementable guidance: add a geopolitical-risk overlay in oil-exporting, USD-pegged markets, condition allocation on inflation regimes in Turkey, and monitor correlation regimes where average predictability is weak.

Suggested Citation

  • Nesrine Mechri & Saker Sabkha, 2025. "Geopolitical Risk, Inflation, and Commodity Shocks in MENA: Evidence from a VECM-HAC-DCC Framework," Working Papers hal-05299155, HAL.
    • Handle: RePEc:hal:wpaper:hal-05299155
    Note: View the original document on HAL open archive server: https://hal.science/hal-05299155v1
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    JEL classification:

    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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