Interaction between MENA Stock Markets: A Comovement Wavelet Analysis

Abstract

This paper investigates the integration of emerging stock markets over different time horizons using daily data over 1992-2011. The links among major Middle East and North African (MENA) stock exchange markets (Egypt, Israel, Jordan, Lebanon, Morocco, Turkey and United Arab Emirates) are considered by adopting the recently developed wavelet comovement analysis (Rua, 2010). The wavelet base measure of correlation enables not only to analyze the interdependence among stock markets but also to consider changing effects of time and frequency domains simultaneously. The characteristics of returns’ patterns are examined over the whole sample by special emphasis on pre- and post-global financial crisis periods to test the impact of pressure exerted on these markets through the interdependence in the global economic structure. The results indicate that MENA stock markets are partially integrated and the degree of interdependence has increased significantly after 2008 Crisis. Nevertheless, for global investors there is still room for gains especially in the post global crisis period.

Keywords: Wavelets, Comovement, Interdependence, Financial Integration, MENA stock exchanges

JEL Classification: C22, F36, G01, G15