Testing for “contagion” of the subprime crisis on the Middle East and North African stock markets: A Markov Switching EGARCH approach

Wajih Khallouli (wajih.khallouli@gmail.com) and René Sandretto (sandretto@gate.cnrs.fr)
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René Sandretto: Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France

No 1022, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: In this paper, we investigate whether the recent financial turmoil which arose in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson, 1999) rather than shift-contagion (Rigobon, 2003). Then, we explicitly define financial “contagion” in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistence of recession characterised by low mean/high variance regimes which coincides with the third phases of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market.

Keywords: Subprime crisis; Contagion; MENA stock markets; Markov switching EGARCHmodel (search for similar items in EconPapers)
JEL-codes: C32 F31 G01 G15 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010
New Economics Papers: this item is included in nep-ara
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ftp://ftp.gate.cnrs.fr/RePEc/2010/1022.pdf (application/pdf)

Related works:
Journal Article: Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach (2012)
Working Paper: Testing for “contagion” of the subprime crisis on the Middle East and North African stock markets: A Markov Switching EGARCH approach (2012)
Working Paper: Testing for "contagion" of the subprime crisis on the Middle East and North African stock markets: A Markov Switching EGARCH approach (2010)
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