An Empirical Examination of Stability, Predictability, and Volatility of Middle Eastern and African Emerging Stock Markets

Haque Mahfuzul, M. Kabir Hassan, Maroney Neal C and Sackley William H
Additional contact information
Haque Mahfuzul: Indiana State University
Maroney Neal C: University of New Orleans
Sackley William H: Economics and Finance Department, University of North Carolina at Wilmington

Review of Middle East Economics and Finance, 2004, vol. 2, issue 1, 18-41

Abstract: This paper examines the stability, predictability, volatility, time varying risk premiums and persistence of shocks to volatility in the ten Middle Eastern and African (ME&A) emerging stock markets. Although the majority of ME&A markets only recently gained emerging status, one finds that five out of the ten ME&A emerging markets have stable returns over time. On the issue of predictability in the ME&A emerging markets, three different tests have been employed to draw conclusions. It was found that by using the three different tests, one receives slightly different results on predictability. In general, one finds ME&A markets to be unpredictable. The findings on volatility in the emerging market indicate that eight out of the ten markets show evidence of volatility clustering, but in these eight ME&A markets the shocks are not explosive. On persistence of shocks to volatility, one finds only one market to have permanent shocks; and the volatility movement affects the stock market returns. In summary, eight emerging markets have volatility clustering and one market shows positive and significant time varying risk premiums. Overall, the results fail to indicate time varying risk premium in nine of the ten ME&A markets. Although many of the emerging markets in ME&A regions are in the formative stage, it is felt that ME&A equity markets are where investors may find a good return for the investment, considering the trade-off between risk and return. In particular, the correlation is found to be low, which provides investors with the opportunity for diversification.

Keywords: risk premium; stability; predictability; volatility; GARCH-M; emerging stock markets (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (10)

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DOI: 10.2202/1475-3693.1018

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