Regime-Switching Behavior in the Conditional Volatility of MENA Stock Market Returns

ERF Working Paper No. 683

19 Pages Posted: 29 Apr 2014

See all articles by Slah Bahloul

Slah Bahloul

University of Sfax - Higher Institute of Business Administration

Fathi Abid

University of Sfax, Faculty of Economic and Management Sciences, Probability & Statistics Laboratory

Date Written: June 2012

Abstract

The objective of this paper is to investigate the behavior of the time varying volatility in eleven MENA countries’ stock market using a three-state Markov regime-switching model over the period from October 30, 2006 to October 21, 2011. We find that MENA stock market volatility can be characterized by three regimes: tranquil period with low volatility of volatility, turmoil regime with high volatility of volatility and crisis regime with extremely high volatility of volatility. Besides, the Granger causation effects from the MSCI World index to MENA stock markets are stronger and statistically significant especially in crisis regime.

Keywords: time varying volatility, MENA countries’ stock market, three-state Markov regime switching model, Granger causality test

JEL Classification: F30, G01, G15

Suggested Citation

Bahloul, Slah and Abid, Fathi, Regime-Switching Behavior in the Conditional Volatility of MENA Stock Market Returns (June 2012). ERF Working Paper No. 683. Available at SSRN: https://ssrn.com/abstract=2430093 or http://dx.doi.org/10.2139/ssrn.2430093

Slah Bahloul (Contact Author)

University of Sfax - Higher Institute of Business Administration ( email )

Road of the Airport 4
Sfax, BP 1013
Tunisia

Fathi Abid

University of Sfax, Faculty of Economic and Management Sciences, Probability & Statistics Laboratory ( email )

Road of Airport, Km 4
Sfax, sfax 3018
Tunisia
+216 7427 9154 (Phone)

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