Israeli-Hezbollah War and Global Financial Crisis in the Middle East and North African Equity Markets

Abstract

This paper, which relies on a dynamic conditional correlation model covering eight years of daily data for twelve equity markets in the Middle East and North Africa, examines the dynamic behaviour of equity returns and the response to international and regional stress periods. We assess whether the Israeli-Hezbollah war and the global financial crisis have accentuated equity linkages and find strong evidence that, although war and financial crisis shocks caused harmful consequences in most MENA markets, there were significant benefits of regional diversification during stress periods in some MENA markets. Low equity correlations across several markets are driven by both the war and the global financial crisis, implying that there still appear to be benefits from regional diversification, especially in the times of stress when it is most needed. Our empirical results are useful for asset managers seeking to construct portfolios that can better resist adverse market conditions. JEL Classifications: F30, G01

Return and volatility linkages between oil prices and the Lebanese stock market in crisis periods

“…Recent efforts by the Lebanese government to encourage the capital market and to increase market transparency have gained ground following the establishment of Capital Market Authorities. Compared to other MENA stock markets, however, Lebanon has both the second smallest and the second least liquid exchange after Tunisia and Bahrain, respectively [8,9]. In 2014, the total market capitalization of listed companies reached $11.267 billion, whereas the value of traded shares stood at $530.230 million.…”

“…For example, oil prices and volatility shocks could cause a slump in the stock markets and the wealth of market participants which could in turn dampen consumer spending and prospects of growth. Especially in turmoil periods, when return and volatility linkages between markets vary dramatically [8], those challenges encourage better riskassessment. Confronting these challenges, investors need to adjust their asset allocation in order to make their portfolios better resist turmoil periods, whereas regulators engaged in maintaining financial stability need to take appropriate actions during times of market turmoil to repair financial markets and to prevent shocks across markets [7].…”

Geopolitical Risks and Movements in Islamic Bond and Equity Markets: A Note

“…In other studies that specifically focus on emerging stock markets, Aslam and Kang (2015) find that terrorist attacks have a short-lived negative effect on Pakistani stock returns, arguing that the intensity of effect depends on the locations and types of attack. Similarly, examining the impact of both crisis and war periods on the return of twelve equity markets in the Middle East and North Africa, Bouri (2014) shows that, although war and financial crisis shocks caused harmful consequences in most of the studied markets, the benefits of regional diversification can be still achieved. Finally, Balcilar et al (forthcoming) show that the effect of geopolitical risks is heterogeneous across the BRICS stock markets and is more significant on volatility measures than on returns.…”

Ownership concentration, ownership identity, and bank performance

“…Total market capitalization of the ten publicly owned companies stood at $11.08 billion at the end of July 2016, about 23.5% of nominal GDP. Of the stock markets in the Middle East and North Africa (MENA) region, Lebanon is noted to be the second least liquid, after Bahrain (Bouri, 2013;Bouri, 2014).…”