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An Empirical Investigation of Stock Market Behavior in the Middle East and North Africa

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  • G12 - Asset Pricing
  • Trading Volume
  • Bond Interest Rates
  • G15 - International Financial Markets
  • C22 - Time-Series Models
  • Dynamic Quantile Regressions
  • Dynamic Treatment Effect Models


This paper studies excess market returns in the relatively understudied nancial markets of nine Middle Eastern and North African (MENA) countries within the context of three variants of the Capital Asset Pricing Model: the static international CAPM; the constant-parameter intertemporal CAPM; and a Markov-switching intertemporal CAPM which allows for the degree of integration with international equity markets to be time-varying. On the whole we nd that: (1) Israel and Turkey are most strongly integrated with world nancial markets; (2) in most other MENA markets examined there is primarily local pricing of risk and evidence of a positive risk-return trade-o; and (3) there is substantial time variation in the weights on local and global pricing of risk for all of these markets. Our results suggest that investment in many of these markets over the sample studied would have provided returns uncor- related with global markets, and thus would have served as nancial instruments with which portfolio diversication could have been improved.

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