Regime-Switching Behavior in the Conditional Volatility of MENA Stock Market Returns
ERF Working Paper No. 683
19 Pages Posted: 29 Apr 2014
Date Written: June 2012
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: Suggested Citation