Do Emerging and Frontier Stock Markets of Middle East and North Africa (MENA) Region Provide Diversification Opportunities?

  • Nisha Mary ThomasEmail author
  • Smita Kashiramka
  • Surendra Singh Yadav
Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)


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.


Stock market integration MENA Frontier markets Emerging markets 


G10 G15 


  1. Arouri, M. E., & Nguyen, D. K. (2009). Time-varying characteristics of cross-market linkages with empirical application to Gulf stock markets. Managerial Finance, 36(1), 57–70.CrossRefGoogle Scholar
  2. Batareddy, M., Gopalaswamy, A. K., & Huang, Chia-Hsing. (2012). The stability of long-run relationships: A study on Asian emerging and developed stock markets (Japan and US). International Journal of Emergency Medicine, 7(1), 31–48.Google Scholar
  3. Berger, D., Pukthuanthong, K., & Yang, J. J. (2013). Is the diversification benefit of frontier markets realizable by mean-variance investors? The evidence of investable funds. The Journal of Portfolio Management, 39(4), 36–48.CrossRefGoogle Scholar
  4. Cheng, A.-R., Jahan-Parvar, M. R., & Rothman, P. (2010). An empirical investigation of stock market behavior in the Middle East and North Africa. The Journal of Empirical Finance, 17, 413–427.CrossRefGoogle Scholar
  5. Chiang, T. C., Jeon, B. N., & Li, H. (2007). Dynamic correlation analysis of financial contagion: Evidence from Asian markets. Journal of International Money and Finance, 26(7), 1206–1228.CrossRefGoogle Scholar
  6. Demian, C. V. (2011). Cointegration in Central and East European markets in light of EU accession. Journal of International Financial Markets, Institutions & Money, 21(1), 144–155.CrossRefGoogle Scholar
  7. Dhanaraj, S., Gopalaswamy, A. K., & Babu, M. (2013). Dynamic interdependence between US and Asian markets: an empirical study. Journal of Financial Economic Policy, 5(2), 220–237.CrossRefGoogle Scholar
  8. Geweke, J. (1982). Measurement of linear dependence and feedback between multiple time series. Journal of American Statistical Association, 77(378), 304–313.CrossRefGoogle Scholar
  9. Graham, M., Kiviaho, J., Nikkinen, J., & Omran, M. (2013). Global and regional co-movement of the MENA stock markets. Journal of Economics and Business, 65, 86–100.CrossRefGoogle Scholar
  10. Gregory, A. W., & Hansen, B. E. (1996a). Practitioners corner: tests for cointegration in models with regime and trend shifts. Oxford Bulletin of Economics and Statistics, 58(3), 555–560.CrossRefGoogle Scholar
  11. Gregory, A., & Hansen, B. E. (1996b). Residual-based tests for cointegration in models with regime shifts. Journal of Economics, 70(1), 99–126.CrossRefGoogle Scholar
  12. Huyghebaert, N., & Wang, L. (2010). The co-movement of stock markets in East Asia: Did the 1997–1998 Asian financial crisis really strengthen stock market integration? China Economic Review, 21(1), 98–112.CrossRefGoogle Scholar
  13. Institute of International Finance. (2018). MENA economic outlook: Gradual recovery, reforms underway. Dubai: Institute of International Finance.Google Scholar
  14. Kenourgios, D., & Samitas, A. (2011). Equity market integration in emerging Balkan markets. Research in International Business and Finance, 25(3), 296–307.CrossRefGoogle Scholar
  15. Khatoun, B. (2017, January). Why MENA stock markets are likely to shine in 2017? Retrieved February 2018, from
  16. Lagoarde-Segot, T., & Lucey, B. M. (2007). International portfolio diversification: Is there a role for the Middle East and North Africa? Journal of Multinational Financial Management, 17(5), 401–416.CrossRefGoogle Scholar
  17. Maghyereh, A. I., Awartanib, B., & Hilu, K. A. (2015). Dynamic transmissions between the U.S. and equity markets in the MENA countries: New evidence from pre- and post-global financial crisis. The Quarterly Review of Economics and Finance, 56, 123–138.CrossRefGoogle Scholar
  18. Neaime, S. (2012). The global financial crisis, financial linkages and correlations in returns and volatilities in emerging MENA stock markets. Emerging Markets Review, 13(2), 268–282.CrossRefGoogle Scholar
  19. Rizvi, N. U., Kashiramka, S., & Singh, S. (2018). Basel I to Basel III: Impact of credit risk and interest rate risk of banks in India. Journal of Emerging Market Finance 17(1_suppl), S83–S111.Google Scholar
  20. Sharma, A., & Seth, N. (2012). Literature review of stock market integration: a global perspective. Qual Res Financ Mark, 4(1), 84–122.CrossRefGoogle Scholar
  21. Syllignakis, M. N., & Kouretas, G. P. (2010). German, US and Central and Eastern European Stock Market Integration. Open Economies Review, 21, 607–628.CrossRefGoogle Scholar
  22. Thomas, N. M., Kashiramka, S., & Yadav, S. S. (2016). Dynamic linkages among developed, emerging and frontier equity markets of Europe. Journal of Financial Management and Analysis, 29(2), 51–66.Google Scholar
  23. Thomas, N. M., Kashiramka, S., & Yadav, S. S. (2017). Dynamic linkages among developed, emerging and frontier capital markets of Asia Pacific region. Journal of Advances in Management Research, 14(3), 332–351.CrossRefGoogle Scholar
  24. Tripathi, M., Kashiramka, S., & Jain, P. K. (2017). Flexibility in measuring corporate financial performance, EVA versus conventional earnings measures: Evidences from India and China. Global Journal of Flexible Systems Management 1–16.Google Scholar
  25. Valadkhani, A., & Chancharat, S. (2008). Dynamic linkages between Thai and international stock markets. Journal of Economic Studies, 35(5), 425–441.CrossRefGoogle Scholar
  26. Yu, J.-S., & Hassan, M. K. (2008). Global and regional integration of the Middle East and North African (MENA) stock markets. The Quarterly Review of Economics and Finance, 48, 482–504.CrossRefGoogle Scholar
  27. Zivot, E., & Andrews, D. (1992). Further evidence on the crash great crash, the oil price shock and the unit root hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270.Google Scholar

Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Nisha Mary Thomas
    • 1
    Email author
  • Smita Kashiramka
    • 1
  • Surendra Singh Yadav
    • 1
  1. 1.Department of Management StudiesIndian Institute of Technology DelhiDelhiIndia

Personalised recommendations