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Impact of Arab uprising on Portfolio diversification benefits at different investment horizons for the Turkish investors in relation to the regional stock markets: Multivariate GARCH-DCC and Wavelet coherence approaches


  • Buriev, Abdul Aziz
  • Masih, Mansur


The current political changes in the Arab countries have raised concerns about the behaviour of stock markets in the region. It brings an expectation of distortions in the behaviour of the regional financial markets. This study aims at analysing the dynamic relationship between Middle Eastern and North African equity markets exposed to the Arab Spring, namely Turkey, Egypt, Oman, and Lebanon, using Multivariate GARCH-DCC and Wavelet Coherence techniques on weekly data spanning from 2005 to 2015. We employ Multivariate GARCH-DCC to find out the time-varying volatilities and correlations between the markets, and Wavelet Coherence based on Continuous Wavelet Transform followed by the multiscale variance, covariance, and correlations based on Maximal Overlap Discrete Wavelet Transform are used for multi-resolution analysis to see the pattern of interactions between the stock markets across the time-scales: low, medium, and high. The findings tend to suggest that the correlations between the stock markets are quite low all over the period: on average, about 4% until the Global Financial Crisis and 10% afterwards. In general, the volatilities are relatively stable, except for the global financial turmoil period. In particular, equity markets of Lebanon and Egypt display a slightly higher volatility during the Arab Spring. It means that the Turkish investors who have allocated their investments in major trading partners like Egypt may not experience great diversification benefits for almost all investment horizons related to higher trade intensity but moderate benefits arise for Lebanon up to the investment horizons of 32-64 days and longer. However, portfolio diversification benefits are greater if Turkish investors invest in the Oman stock index except during long investment horizons. As for the long run, stock holding periods exceeding 32-64 days have minimal benefits for portfolio diversification. As an implication, Turkish investors should carry out the reassessment of their stock exposures and investment horizons more frequently.

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  • Buriev, Abdul Aziz & Masih, Mansur, 2015. "Impact of Arab uprising on Portfolio diversification benefits at different investment horizons for the Turkish investors in relation to the regional stock markets: Multivariate GARCH-DCC and Wavelet c," MPRA Paper 65233, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65233

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    References listed on IDEAS

    1. Dewandaru, Ginanjar & Rizvi, Syed Aun R. & Masih, Rumi & Masih, Mansur & Alhabshi, Syed Othman, 2014. "Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis," Economic Systems, Elsevier, vol. 38(4), pages 553-571.
    2. Buerhan Saiti & Obiyathulla I. Bacha & Mansur Masih, 2014. "The diversification benefits from Islamic investment during the financial turmoil: The case for the US-based equity investors," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(4), pages 196-211, December.
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    5. Dewandaru, Ginanjar & Masih, Rumi & Masih, A. Mansur M., 2015. "Why is no financial crisis a dress rehearsal for the next? Exploring contagious heterogeneities across major Asian stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 241-259.
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    More about this item


    Arab uprisings; portfolio diversification; MGARCH-DCC; Wavelet Coherence;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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