Do Emerging and Frontier Stock Markets of Middle East and North Africa (MENA) Region Provide Diversification Opportunities?
The study investigates if emerging and frontier equity markets of Middle East and North Africa (MENA) region are well integrated with each other and with the developed markets of USA and UK. Gregory and Hansen cointegration test and Geweke Measures of Feedback are employed to analyze long-run relationship and short-run dependencies between equity markets respectively. The results show that emerging markets of Egypt and Saudi Arabia are fairly segmented with the developed markets and hence have the potential to enhance diversification benefits of a global portfolio. Further, frontier markets like Bahrain, Jordan and Morocco are not well integrated with both the developed markets and regional emerging markets. Hence, these frontier markets also offer gains of diversification to international investors. Results of this study will facilitate international investors in designing an optimal portfolio. It will also benefit policymakers in formulating suitable economic stabilization policies.
KeywordsStock market integration MENA Frontier markets Emerging markets
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