The ripple effect: analyzing the contagion of the Tunisian revolution on the Egyptian stock market

Zahra Meskini and Hasna Chaibi

Journal of Financial Regulation and Compliance, 2024, vol. 32, issue 5, 555-571

Abstract: Purpose - This study aims to test the contagion effect of the Tunisian revolution on the Egyptian stock market. Thus, the purpose of this research is to distinguish the contagion effect from the simple interdependence between these markets. Design/methodology/approach - This paper examines the contagion hypothesis between Tunisia and Egypt during the Arab Spring, using a DCC-MGARCH model to capture time-varying contagion effects and dynamic linkages in stock markets. Therefore, to identify the contagion effect from the simple interdependence, the authors apply the pure contagion test developed by Forbes and Rigobon (2002). Findings - The findings indicate a contagion effect, as the EGX 30 index exhibited similar changes, positive or negative, as the Tunindex index during the period of the Tunisian revolution. Moreover, the analysis demonstrates the presence of an interdependence between the Tunisian revolution and the Egyptian market, emphasizing the interconnections between these two economies. Practical implications - The findings provide investors with a better understanding of financial market dynamics in times of major political unrest, notably on the Tunisian and Egyptian markets. By understanding the contagion effect of the Tunisian revolution on the Egyptian stock market, investors can further explore the complexities of these markets in times of financial crises, which can help mitigate losses and identify strategic investment opportunities. Originality/value - This study makes two significant contributions to the field. First, it addresses the scarcity of research specifically focused on the contagion effect during the Arab Spring, aiming to fill this gap by testing the contagion effect of the Tunisian revolution on a nearby market. Second, it extends the contagion test of Forbes and Rigobon (2002), which associates “pure” contagion with a significantly higher correlation between markets during a crisis.

Keywords: Arab Spring; Contagion; Tunisian revolution; Egyptian stock market; DCC-MGARCH model (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-09-2023-0153

DOI: 10.1108/JFRC-09-2023-0153

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