Geopolitical Risk, Inflation, and Commodity Shocks in MENA: Evidence from a VECM-HAC-DCC Framework

Nesrine Mechri () and Saker Sabkha ()
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Nesrine Mechri: UR CONFLUENCE : Sciences et Humanités (EA 1598) - UCLy - UCLy (Lyon Catholic University), ESDES - ESDES, Lyon Business School - UCLy - UCLy - UCLy (Lyon Catholic University)
Saker Sabkha: LEGO - Laboratoire d'Economie et de Gestion de l'Ouest - UBS - Université de Bretagne Sud - UBO EPE - Université de Brest - IMT - Institut Mines-Télécom [Paris] - IBSHS - Institut Brestois des Sciences de l'Homme et de la Société - UBO EPE - Université de Brest - UBL - Université Bretagne Loire - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris]

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Abstract: This paper examines how macro conditions shape equity returns across 13 Middle East and North Africa markets using monthly data from January 2016 to June 2025. A compact VECM-HAC-DCC framework preserves long-run relations, controls for heteroskedasticity, and maps time variation in correlations. At the 5 percent level, geopolitical risk predicts standardized returns in 4 of 13 markets and remains after false-discovery control in two oil-exporting, USD-pegged markets. Inflation predicts only in Turkey and survives FDR. A commodity factor extracted from oil and gold is episodic, with significance concentrated in Jordan. Dynamic-correlation paths reveal regimes aligned with identifiable stress periods. The evidence translates into implementable guidance: add a geopolitical-risk overlay in oil-exporting, USD-pegged markets, condition allocation on inflation regimes in Turkey, and monitor correlation regimes where average predictability is weak.

Keywords: Commodity factor; O53; C58; E44; C32; DCC. JEL: G15; HAC; VECM; Policy rate; Exchange rate; Inflation; Geopolitical risk; Equity markets; MENA; MENA Equity markets Geopolitical risk Inflation Exchange rate Policy rate Commodity factor VECM HAC DCC. JEL: G15 C32 E44 C58 O53 (search for similar items in EconPapers)
Date: 2025-11-20
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