An Empirical Examination of Stability, Predictability, and Volatility of Middle Eastern and African Emerging Stock Markets

Abstract

This paper examines the stability, predictability, volatility, time varying risk premiums and persistence of shocks to volatility in the ten Middle Eastern and African (ME&A) emerging stock markets. Although the majority of ME&A markets only recently gained emerging status, one finds that five out of the ten ME&A emerging markets have stable returns over time. On the issue of predictability in the ME&A emerging markets, three different tests have been employed to draw conclusions. It was found that by using the three different tests, one receives slightly different results on predictability. In general, one finds ME&A markets to be unpredictable. The findings on volatility in the emerging market indicate that eight out of the ten markets show evidence of volatility clustering, but in these eight ME&A markets the shocks are not explosive. On persistence of shocks to volatility, one finds only one market to have permanent shocks; and the volatility movement affects the stock market returns. In summary, eight emerging markets have volatility clustering and one market shows positive and significant time varying risk premiums. Overall, the results fail to indicate time varying risk premium in nine of the ten ME&A markets. Although many of the emerging markets in ME&A regions are in the formative stage, it is felt that ME&A equity markets are where investors may find a good return for the investment, considering the trade-off between risk and return. In particular, the correlation is found to be low, which provides investors with the opportunity for diversification.

The Iraqi Stock Market: Development and Determinants

“…Previously, volatility models for Middle Eastern stock markets were applied by Hassan et al (2003), Haque et al (2004) and Zarour and Siripoulos (2008). Haque et al (2004) estimated GARCH (1,1) models for five Middle Eastern weekly returns of stock-market indices.…”

“…Haque et al (2004) estimated GARCH (1,1) models for five Middle Eastern weekly returns of stock-market indices. Since the returns are expressed in US dollars the stock-markets dynamics are confounded with exchange-rate effects.…”

The impact of trading volume on stock price volatility in the Arab economy

“…Second: Studies regarding volatility and risk management: Sioud and Hmaied 27 examined the effect of automation in the Tunisia stock exchange on the liquidity, volatility, returns, and efficiency of shares traded and found no significant effects on volatility or efficiency. Haque et al 28 examined the stability and persistence of shocks to volatility in ten Middle Eastern and African emerging stock markets and found that eight out of the ten markets showed evidence of volatility clustering. Omran and Pointon 29 indicated that the inflation rate had an impact on the performance of the Egyptian stock market.…”

Stock Market Volatility Using GARCH Models: Evidence from South Africa and China Stock Markets

“…A study conducted by Hassan, Maroney, El Sady and Telfah (2003) found that ARCH and GARCH effects exist in African stock markets, with Nigeria and South Africa stock markets showing that politics has a significant impact on those markets. On the hand, Haque et al (2004) found that there is no persistence of volatility in the South African stock market. However, Hassan et al (2003) points that African stock market volatility increases with the good news because once good news appears, investors may flood in, thus, increasing volatility.…”