Stock Markets Dynamic Linkages: Evidence from the Middle East and North Africa

Recent regional political crises and a global oil glut have subjected stock markets in the Middle East and North Africa to regional and global shocks. The magnitude and signs of these shocks, and the transmission mechanisms that carry them to an array of relatively local stock markets are likely different based on the economic structure of the economies of their host nations and the strength of regional economic and political ties. Only a few studies have tested the influence of regional and global shocks on MENA stock markets. This study investigates the interdependence within this regional bloc and between regional and developed nations' markets in the contexts of six global and regional shocks.;It finds that there is normally strong regional interdependence due to the economic structures and political ties between countries, but interdependence with global markets is low. When crises occur, however, these markets are vulnerable to both global and regional shocks, and the magnitude of the shocks is rather stronger from global than regional crises. Thus, there is less potential benefit of risk reduction in investing across regional markets during periods of political or economic turmoil. That said, equity diversification on a global level would likely improve investment returns when regional shocks occur.