Comovements and Causality of Sector Price Indices: Evidence from the Egyptian Stock Exchange

Ahmed, Walid M.A. (2011): Comovements and Causality of Sector Price Indices: Evidence from the Egyptian Stock Exchange.

Abstract

Contributing to the meagre published literature on interrelationships amongst stock market sectors of an economy, the present study sets out to examine both the long-run and short-run aspects of the inter-sectoral linkages in the Egyptian stock market. The data correspond to daily closing prices for twelve sectoral indices of the Egyptian stock market, covering the period between January 3, 2007 and January 18, 2010. The multivariate cointegration analysis reports evidence in support of existence of only a single cointegrating vector within the sectoral indices. Moreover, the results of Granger’s causality analysis show that the short-run causal relationships between the sectoral indices are considerably limited and, where they exist, virtually unidirectional. In general, these results lead to the conclusion that there is still room to derive benefits from portfolio diversification in the short run. However, investors with long-term horizon may not benefit from diversifying investments into the different sectors of the Egyptian stock market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock Market sectors; Egypt; Domestic portfolio diversification; Johansen’s cointegration analysis; Granger's causality analysis
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; N - Economic History > N2 - Financial Markets and Institutions > N27 - Africa ; Oceania; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes

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