Capital Market Integration in the Middle East and North Africa and its Implications for International Portfolio Allocation

29 Pages Posted: 21 Oct 2005

See all articles by Thomas Lagoarde-Segot

Thomas Lagoarde-Segot

Euromed Management Marseille

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Abu Dhabi University - College of Business Administration; Shanghai Lixin Univeristy of Accounting and Finance

Abstract

The objective of this paper is to study capital market integration in the MENA countries and its implications for an international portfolio investment allocation. Using four co-integration methodologies, we significantly reject the hypothesis of a stable, long run bivariate relationship and between each of these markets and the European Monetary Union, the USA, and a regional benchmark. This indicates the existence of significant diversification opportunities for the three categories of investors. A time-varying analysis based on Barari (2004) suggests that the MENA markets have recently started moving towards international financial integration. They also seem to display heterogeneous reactions to financial, economic and political events, and should therefore not be treated as a block for global allocation purposes. Finally, adjusting these scores by market capitalization highlights that Israel and Turkey are the most promising markets in the region. They are followed by Egypt, Jordan and Morocco, while Tunisia and Lebanon seem to be lagging behind.

Keywords: Stock Market Integration, Portfolio Diversification, MENA markets, Time-varying methods

JEL Classification: G11, G12, G15

Suggested Citation

Lagoarde-Segot, Thomas and Lucey, Brian M., Capital Market Integration in the Middle East and North Africa and its Implications for International Portfolio Allocation. Available at SSRN: https://ssrn.com/abstract=739748 or http://dx.doi.org/10.2139/ssrn.739748

Thomas Lagoarde-Segot

Euromed Management Marseille ( email )

Domaine de Luminy
BP 921 13288 Marseille Cedex 9, 13288
France

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Abu Dhabi University - College of Business Administration ( email )

PO Box 59911
Abu Dhabi, Abu Dhabi 59911
United Arab Emirates

Shanghai Lixin Univeristy of Accounting and Finance ( email )

Shanghai
China

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