Impact of Political Instability on Cointegration: Evidence from MENA Region Stock Markets during Pre and Post Egyptian Revolution Period

Ezzat, Hassan (2014): Impact of Political Instability on Cointegration: Evidence from MENA Region Stock Markets during Pre and Post Egyptian Revolution Period.

Abstract

This paper explores inter-market linkages between the Egyptian equity market and the MENA region markets of Turkey, Saudi Arabia, Israel and Jordan during the pre and post Egyptian revolution period of the 25th of January 2011. Johansen’s cointegration was used to study long-run linkages. Granger causality was applied using the Toda and Yamamoto procedure to study short-run linkages. Results provided evidence of increased levels of cointegration during the post revolution period between (i) Egypt and Turkey, (ii) Egypt and Israel, and (iii) Egypt and Jordan and decreased levels of cointegration between Egypt and Saudi Arabia. Granger causality indicated a decrease in short-run linkages during the post revolution period between (i) Egypt and Turkey, (ii) Egypt and Saudi Arabia, and (iii) Egypt and Israel while short-run linkages between Egypt and Jordan remained the same.The variations in inter-market linkages between the two periods suggest that during the crisis period short term portfolio diversification may be successful while long term diversification is unlikely to be successful.

• Item Type: MPRA Paper
• Language: English
• Keywords: Johansen’s cointegration, Ganger causality, MENA region, political instability, interdependence, diversification, Egyptian revolution, Egyptian stock market.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; F - International Economics > F0 - General > F02 - International Economic Order and Integration; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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