IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2006-187.html
   My bibliography  Save this paper

The Jordanian Stock Market—Should You Invest in It for Risk Diversification or Performance?

Author

Listed:
  • Mr. Martin Petri
  • Tahsin Saadi Sedik

Abstract

We analyze the performance of the Amman Stock Exchange (ASE) and its integration with other markets. Using cointegration techniques, we find that the ASE and other Arab stock markets are cointegrated, which implies little long-run risk diversification. However, there is no cointegrating relationship between the ASE and other emerging or developed stock markets. Two of the main regional stock markets-Kuwait and Saudi Arabia-Grangercause the Jordanian stock market. The paper finds that there may have been some overvaluation at end-2005, but that the market correction in early 2006 and strong recent earnings growth have reduced overvaluation concerns.

Suggested Citation

  • Mr. Martin Petri & Tahsin Saadi Sedik, 2006. "The Jordanian Stock Market—Should You Invest in It for Risk Diversification or Performance?," IMF Working Papers 2006/187, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2006/187
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=19399
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Eun, Cheol S & Resnick, Bruce G, 1984. "Estimating the Correlation Structure of International Share Prices," Journal of Finance, American Finance Association, vol. 39(5), pages 1311-1324, December.
    2. Engle, Robert F & Hendry, David F & Richard, Jean-Francois, 1983. "Exogeneity," Econometrica, Econometric Society, vol. 51(2), pages 277-304, March.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Richards, Anthony J., 1995. "Comovements in national stock market returns: Evidence of predictability, but not cointegration," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 631-654, December.
    5. Gregory, Allan W, 1994. "Testing for Cointegration in Linear Quadratic Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 347-360, July.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    7. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
    8. Chen, Gong-meng & Firth, Michael & Meng Rui, Oliver, 2002. "Stock market linkages: Evidence from Latin America," Journal of Banking & Finance, Elsevier, vol. 26(6), pages 1113-1141, June.
    9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    10. repec:rus:hseeco:278562 is not listed on IDEAS
    11. Topol, Richard, 1991. "Bubbles and Volatility of Stock Prices: Effect of Mimetic Contagion," Economic Journal, Royal Economic Society, vol. 101(407), pages 786-800, July.
    12. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
    13. Click, Reid W. & Plummer, Michael G., 2005. "Stock market integration in ASEAN after the Asian financial crisis," Journal of Asian Economics, Elsevier, vol. 16(1), pages 5-28, February.
    14. Rangvid, Jesper, 2001. "Increasing convergence among European stock markets?: A recursive common stochastic trends analysis," Economics Letters, Elsevier, vol. 71(3), pages 383-389, June.
    15. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-1056, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Amira Akl Ahmed, 2014. "Evolving and relative efficiency of MENA stock markets: evidence from rolling joint variance ratio tests," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 91-126, May.
    2. Ujjal Protim Dutta & Partha Pratim Sengupta, 2018. "Remittances and Real Effective Exchange Rate," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 19(1), pages 124-136, March.
    3. Billmeier, Andreas & Massa, Isabella, 2008. "Go long or short in pyramids? News from the Egyptian stock market," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 949-970, December.
    4. Mr. Andreas Billmeier & Miss Isabella Massa, 2007. "What Drives Stock Market Development in the Middle East and Central Asia—Institutions, Remittances, or Natural Resources?," IMF Working Papers 2007/157, International Monetary Fund.
    5. Abdul Aziz Farid Saymeh & Marwan Mohammad Abu Orabi, 2014. "Key Fundamental Factors and Long-run Price Changes in Emerging Equity Markets: A Case of ASE-Jordan," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 3(4), pages 175-186.
    6. George Amfo-Antiri & Edward Quansah, 2017. "Cointegration of Stock Prices and Domestic Portfolio Diversification Opportunities: Evidence from the Ghana Stock Exchange," Applied Economics and Finance, Redfame publishing, vol. 4(5), pages 78-93, September.
    7. Mr. Martin Petri & Tahsin Saadi Sedik, 2006. "To Smooth or Not to Smooth—The Impact of Grants and Remittances on the Equilibrium Real Exchange Rate in Jordan," IMF Working Papers 2006/257, International Monetary Fund.
    8. Biplab Bhattacharjee & Muhammad Shafi & Animesh Acharjee, 2017. "Investigating the Evolution of Linkage Dynamics among Equity Markets Using Network Models and Measures: The Case of Asian Equity Market Integration," Data, MDPI, vol. 2(4), pages 1-28, December.
    9. Billmeier, Andreas & Massa, Isabella, 2009. "What drives stock market development in emerging markets--institutions, remittances, or natural resources?," Emerging Markets Review, Elsevier, vol. 10(1), pages 23-35, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nafeesa Yunus & Peggy Swanson, 2007. "Modelling Linkages between US and Asia‐Pacific Securitized Property Markets," Journal of Property Research, Taylor & Francis Journals, vol. 24(2), pages 95-122.
    2. Phengpis, Chanwit & Apilado, Vince P., 2004. "Economic interdependence and common stochastic trends: A comparative analysis between EMU and non-EMU stock markets," International Review of Financial Analysis, Elsevier, vol. 13(3), pages 245-263.
    3. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2008. "Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience," Working papers 2008-49, University of Connecticut, Department of Economics.
    4. Eleni Constantinou & Avo Kazandjian & Georgios P. Kouretas & Vera Tahmazian, 2008. "Common Stochastic Trends Among The Cyprus Stock Exchange And The Ase, Lse And Nyse," Bulletin of Economic Research, Wiley Blackwell, vol. 60(4), pages 327-349, October.
    5. Yang, Lixiong & Lee, Chingnun & Shie, Fu Shuen, 2014. "How close a relationship does a capital market have with other markets? A reexamination based on the equal variance test," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 198-226.
    6. Chien, Mei-Se & Lee, Chien-Chiang & Hu, Te-Chung & Hu, Hui-Ting, 2015. "Dynamic Asian stock market convergence: Evidence from dynamic cointegration analysis among China and ASEAN-5," Economic Modelling, Elsevier, vol. 51(C), pages 84-98.
    7. Crowder, William J. & Wohar, Mark E., 1998. "Cointegration, forecasting and international stock prices," Global Finance Journal, Elsevier, vol. 9(2), pages 181-204.
    8. Nafeesa Yunus, 2009. "Increasing Convergence Between U.S. and International Securitized Property Markets: Evidence Based on Cointegration Tests," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(3), pages 383-411, September.
    9. Solarin Sakiru Adebola & Jauhari Dahalan, 2012. "An Empirical Analysis of Stock Markets Integration in Selected African Countries," EuroEconomica, Danubius University of Galati, issue 2(31), pages 166-177, May.
    10. Dimpfl, Thomas, 2014. "A note on cointegration of international stock market indices," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 10-16.
    11. Voronkova, Svitlana, 2004. "Equity market integration in Central European emerging markets: A cointegration analysis with shifting regimes," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 633-647.
    12. Richard Fu & Marco Pagani, 2012. "On the cointegration of international stock indices," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(2), pages 463-480, April.
    13. Phengpis, Chanwit, 2006. "Market efficiency and cointegration of spot exchange rates during periods of economic turmoil: Another look at European and Asian currency crises," Journal of Economics and Business, Elsevier, vol. 58(4), pages 323-342.
    14. Kim Hiang Liow, 2008. "Financial Crisis and Asian Real Estate Securities Market Interdependence: Some Additional Evidence," Journal of Property Research, Taylor & Francis Journals, vol. 25(2), pages 127-155, November.
    15. Raj Aggarwal & Brian M. Lucey & Cal Muckley, 2004. "Dynamics of Equity Market Integration in Europe: Evidence of Changes over time and with events," The Institute for International Integration Studies Discussion Paper Series iiisdp019, IIIS.
    16. Yunus, Nafeesa & Swanson, Peggy E., 2012. "Changing integration of EMU public property markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 194-208.
    17. Andrew Davies, 2006. "Testing for international equity market integration using regime switching cointegration techniques," Review of Financial Economics, John Wiley & Sons, vol. 15(4), pages 305-321.
    18. T Lorde & B Francis & A Greene, 2009. "Testing for Long-Run Comovement, Common Features and Efficiency in Emerging Stock Markets: Evidence from the Caribbean," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 55-80, September.
    19. Andy Wui-Wing Cheng & Nikolai Sheung-Chi Chow & David Kam-Hung Chui & Wing-Keung Wong, 2019. "The Three Musketeers Relationships between Hong Kong, Shanghai and Shenzhen Before and After Shanghai–Hong Kong Stock Connect," Sustainability, MDPI, vol. 11(14), pages 1-20, July.
    20. Muhammad Niaz Khan & Suzanne G. M. Fifield & Nongnuch Tantisantiwong & David M. Power, 2022. "Changes in co-movement and risk transmission between South Asian stock markets amidst the development of regional co-operation," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(1), pages 87-117, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2006/187. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.