Asset Pricing in the Middle East’s Equity Markets

78 Pages Posted: 9 Dec 2020 Last revised: 11 Dec 2020

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton; University of Bradford - School of Management

Jing Li

University of Bradford - School of Management

Dariya Mykhayliv

University of Bradford; University of Leeds

Muhammad Waqas

University of Bradford

Date Written: December 8, 2020

Abstract

This paper undertakes a comparison between five multifactor variants of the capital asset pricing model, where this is augmented by size, book to market value, momentum, liquidity and a new investor protection metric based on the product of institutional quality in a country and the proportion of free float shares, which captures the impact of controlling block holders. Using monthly returns of 909 blue chip firms from 16 Middle East & North African equity markets for 16 years, we show that a two factor CAPM augmented with a factor mimicking portfolio based on the investor protection metric yields the highest explanatory power. Analysis of Kalman filter time varying investor protection betas reveals investor protection premiums in Egypt, Iraq, Lebanon and Tunisia and corresponding discounts in Israel, Saudi Arabia, Kuwait, Oman, Dubai and Abu Dhabi.

Keywords: Investor Protection, CAPM, Emerging Financial Markets, Middle East & North Africa

JEL Classification: G11, G12, G15, O55

Suggested Citation

Hearn, Bruce Allen and Li, Jing and Mykhayliv, Dariya and Waqas, Muhammad, Asset Pricing in the Middle East’s Equity Markets (December 8, 2020). Available at SSRN: https://ssrn.com/abstract=3745203 or http://dx.doi.org/10.2139/ssrn.3745203

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

Jing Li

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

Dariya Mykhayliv

University of Bradford ( email )

Bradford
Bradford, West Yorkshire BD9 4JL
United States

University of Leeds

Leeds, LS2 9JT
United Kingdom

Muhammad Waqas

University of Bradford ( email )

Bradford
Bradford, West Yorkshire BD7 1DP
United Kingdom

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