Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach

Wajih Khallouli () and René Sandretto ()
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René Sandretto: GATE Lyon St Etienne, Postal: GATE Lyon St Etienne (Groupe d'Analyse et de Theorie Economique) CNRS -, University of Lyon, 93 chemin des Mouilles BP 167. 69131 ECULLY (France)

Journal of Economic Integration, 2012, vol. 27, 134-166

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 phase 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 EGARCH Model (search for similar items in EconPapers)
JEL-codes: C32 F31 G01 G15 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Related works:
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)
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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