Portfolio Management in the selected Middle East countries: New evidence of Iran-Israel War

Roudari, Soheil and Ahmadian- Yazdi, Farzaneh and Chenarani, Hasan and Mensi, Walid (2025): Portfolio Management in the selected Middle East countries: New evidence of Iran-Israel War.

Abstract

Middle Eastern countries, due to their natural and financial resources, occupy a strategic position in the global economy. Despite this, portfolio management of their financial markets remains largely unexplored amid political and geopolitical crises. This study investigates return spillovers among eight selected currencies, analyzing total connectedness (TCI), net transmitters and receivers of risk, dynamic optimal weights, hedge effectiveness, cumulative returns, and Sharpe ratios using MVP, MCP, and MCOP approaches. Findings based on Broadstock et al. (2022) approach, show that the UAE and Saudi Arabia currencies are the main risk transmitters, while Lebanon is the primary receiver. The Israeli shekel exhibits the lowest network connection, making it a suitable asset for portfolio diversification. TCI surged to 65% during the Russia-Ukraine war, reducing diversification opportunities, then rose again during the Israel-Hamas conflict and the 12-day Israel-Iran war, ultimately reaching 50% by the study’s end. Optimal weights and hedge effectiveness indicate that currency selection depends on market conditions and the applied approach; for example, the Qatari stock market offers significant risk management potential, while the MCP approach achieves the highest cumulative returns and Sharpe ratios. Overall, the study highlights that effective risk management in the Middle East requires attention to geopolitical dynamics and structural market changes, providing practical insights for investors and policymakers to optimize asset allocation and enhance financial stability in high-risk environments.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk spillovers, Portfolio management, Geopolitical risk, Middle East Stock Markets
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

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