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 Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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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 EGARCH model (search for similar items in EconPapers)
Date: 2012
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00522683v1
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Citations: View citations in EconPapers (9)

Published in Journal of Economic Integration, 2012, 27 (1), pp. 134-166

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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 (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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