Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries

By Frankie Chau, Rataporn Deesomsak, Jun Wang. 2014

259 citations recorded by the source corpus.

This paper examines the impact of political uncertainty (caused by the civil uprisings in the Arab World i.e., “Arab Spring”) on the volatility of major stock markets in the MENA region. Our main findings are as follows. First, by distinguishing between conventional and Islamic stock market indices, we find that these two groups of investments react heterogeneously to the recent political turmoil. Specifically, we document a significant increase in the volatility of Islamic indices during the period of political unrests whereas the uprisings have had little or no significant effect on the volatility in conventional markets. Such difference is confirmed by further analysis in a multivariate GARCH model. Second, regardless of its impact on volatility, there is little evidence to suggest that MENA markets have become more integrated with international markets after the political revolution. Third, similar results are not found for the benchmark indices which indicate that the changes are the result of political tensions. In general, these results are robust to model specification and consistent with the notion that political uncertainty contributes to financial volatility. Overall, the findings are important in understanding the role of political uncertainty on stock market stability and are of great significance to investors and market regulators.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c6fc4ec6a8068c9679582c20b7e65f7a6f1cdf90

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Citations in the corpus

Dynamic dependence of the global Islamic equity index with global conventional equity market indices and risk factors (2014, background): “Dania and Malhotra (2013) investigate the dynamic linkages among four major Islamic indices and their corresponding ―conventional‖ indices of North America, European Union, Far East, and Pacific nation markets.”