<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This article investigates the interdependence of stock-forex markets in MENA (Middle East and North Africa) countries for the February 26, 1999 to June 30, 2014 period. The analysis has been performed through three competing models: the VAR-CCC-GARCH model of Bollerslev [1990]; the VAR-BEKK-GARCH model of Engle and Kroner [1995]; and the VAR-DCC-GARCH model of Engle [2002]. Our findings confirm that both markets are interdependent and corroborate the stock and flow oriented approaches. We also find that, comparing to optimal weights, hedge ratios are typically low, denoting that hedging efficiency is quite good. Our estimation of hedging efficiency suggests that incorporating foreign exchange in a full stock, unhedged portfolio increases the risk-adjusted return while reducing its variance. (We note here that the forex market is overweighted for both portfolio allocations and hedging strategies.) Moreover, this conclusion holds for all countries in all three models.</p></abstract>

This article investigates the interdependence of stock-forex markets in MENA (Middle East and North Africa) countries for the February 26, 1999 to June 30, 2014 period. The analysis has been performed through three competing models: the VAR-CCC-GARCH model of Bollerslev [1990]; the VAR-BEKK-GARCH model of Engle and Kroner [1995]; and the VAR-DCC-GARCH model of Engle [2002]. Our findings confirm that both markets are interdependent and corroborate the stock and flow oriented approaches. We also find that, comparing to optimal weights, hedge ratios are typically low, denoting that hedging efficiency is quite good. Our estimation of hedging efficiency suggests that incorporating foreign exchange in a full stock, unhedged portfolio increases the risk-adjusted return while reducing its variance. (We note here that the forex market is overweighted for both portfolio allocations and hedging strategies.) Moreover, this conclusion holds for all countries in all three models.

Return Dynamics and Volatility Spillovers Between FOREX and Stock Markets in MENA Countries: What to Remember for Portfolio Choice?

Faculty of Economics and Management of Mahdia, University of Monastir, Tunisia

International Journal of Management and Economics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This article investigates the interdependence of stock-forex markets in MENA (Middle East and North Africa) countries for the February 26, 1999 to June 30,...

Return Dynamics and Volatility Spillovers Between FOREX and Stock Markets in MENA Countries: What to Remember for Portfolio Choice?

Publicado en línea: 19 sept 2015

Páginas: 72 - 100

DOI: https://doi.org/10.1515/ijme-2015-0022

Palabras clave
MENA markets, foreign exchange, flow-stock oriented model, volatility spillovers, portfolio allocations, hedging efficiency, VAR-GARCH model

© Mongi Arfaoui et al.

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Return Dynamics and Volatility Spillovers Between FOREX and Stock Markets in MENA Countries: What to Remember for Portfolio Choice?

Publicado en línea: 19 sept 2015

Páginas: 72 - 100

DOI: https://doi.org/10.1515/ijme-2015-0022

Palabras claveMENA markets, foreign exchange, flow-stock oriented model, volatility spillovers, portfolio allocations, hedging efficiency, VAR-GARCH model

© Mongi Arfaoui et al.

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Palabras clave
MENA markets, foreign exchange, flow-stock oriented model, volatility spillovers, portfolio allocations, hedging efficiency, VAR-GARCH model