Market Efficiency in the MENA Equity Markets: Evidence from Newly Developed Tests and Regime Change

A major issue in financial economics is the behavior of stock market returns over long horizons. This paper provides an empirical investigation of the random walk hypothesis in the MENA equity markets. We use the variance ratio tests developed by Wright (2000), Kim and Wang and Chow Denning (1993) to test for the weak form market efficiency. Then, we use the unit root tests proposed by Saikkonen and Lütkepohl (2002) and Lanne et al. (2002), which allow for a level shift in the data generating process. Our results confirm the stationarity of the MENA equity markets returns in the presence of structural breaks, with the breaks happening mostly during the 2008 and 2009 periods. Further, the findings from our sub-samples indicate that the results from the last sub-periods support the belief that these markets may have been approaching a state of being fairly weak-form efficient, which reflects the future prospects of the MENA countries

Transmission of Stock Price Movements: The Case of GCC Stock Markets

Using a vector autoregressive analysis, this paper investigates the dynamic interactions among stock market returns from six Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates). The empirical investigation is conducted using weekly data from 15 January 1997 to 26 April 2000. During this period, significant steps were taken that intensified financial integration in the GCC region, including privatization policies, increased liberalization of the financial markets and easier entrance of foreign investors to the stock markets. Our empirical evidence suggests the following: (1) there is substantial evidence of interdependence and feedback effects among GCC stock markets; (2) Bahrain plays a dominant role in influencing the GCC markets with a significant persistent impact beyond weeks one and two; (3) Saudi Arabia shows a slow process in responding to shocks originated in other markets; and (4) markets are not completely efficient in processing regional news, providing an opportunity for portfolio diversification at the regional level.

Long memory in international equity markets: revisited

This study provides empirical evidence of the long-range behaviour in international equity markets. We test for long memory in the daily returns using the modified rescaled range statistic R/S proposed by Lo (1991) and the rescaled variance V/S statistic developed by Giraitis et al. (2003). Long memory is found to be weak in the return series when using R/S but some evidence of long memory is found in USA and Germany based on V/S analysis. Our results confirm those reported by Lo (1991) using only the rescaled range analysis and should be useful to regulators, practitioners and derivative market participants, whose success depends on the ability to forecast stock price movements.

Rescaled variance analysis of real exchange rates

The characterization of real exchange rate series as random in nature has been questioned in recent times by the application of new statistical tools. This study uses a new test proposed by Giraitis et al. (Journal of Econometrics, 112, pp. 265-9, 2003) and based on KPSS (Journal of Econometrics, 54, pp. 159-78, 1992) test. The rescaled variance (V/S) statistic is shown to have a simpler asymptotic distribution and achieve a better balance of size and power than Lo's (1991) and KPSS (1992) test. Application of the new test suggests that real exchange rate movements do not show evidence of long memory.

Canadian REITs and Stock Prices: Fractional Cointegration and Long Memory

The literature is not clear on whether there are co-dependencies domestically across real estate and stock markets, despite the importance of this question for portfolio diversification strategies. In this article, we use fractional cointegration and long memory techniques to search for co-dependence in the Canadian markets. The measures of long-term persistence employed are the modified rescaled range statistic (R/S) proposed by Lo (1991), and the rescaled variance (V/S) statistic proposed by Giraitis et al. (2003). We find evidence to suggest long co-memories between stock and securitized property markets in the long term, but some evidence is also found in some sub-samples. The implication of our results is that securitized property and stocks are not considered to be substitutable assets over the short run and these assets may be held together in a portfolio for diversification purposes. However, over the long run, there is less benefit of holding both assets in a portfolio, since a fractional cointegration is found in the residual series.Fractional cointegration, Canadian REITs, V/S, R/S, JEL Classification: C14, JEL Classification: G12

Nonstationarity in real exchange rates using unit root tests with a level shift at unknown time

The empirical literature that tests for purchasing power parity (PPP) by focusing on the stationarity of real exchange rates has so far provided, at best, mixed results. This paper contributes to this discussion by providing new evidence on the stationarity of bilateral real exchange rates, after allowing for regime changes. We test for a unit root in real exchange rates by allowing for a level shift in the DGP. In doing so, we use the unit root tests proposed by Saikkonen and Lütkepohl [Saikkonen, P. and Lütkepohl, H., 2002, Testing for a unit root in a time series with a level shift at unknown time, Econometric Theory 18, 313-348] and Lanne et al. [Lanne, M., Lütkepohl, H., and Saikkonen, P., 2002, Comparison of unit root tests for time series with level shifts, Journal of Time Series Analysis 23, 667-685], which are based on estimating the deterministic term first by a GLS procedure under the unit root null hypothesis and subtracting it from the original series. We subject the series to three level shifts, namely: a shift dummy, an exponential shift and a rational shift. Our results confirm the nonstationarity of real exchange rate series in the presence of structural breaks during the post-Bretton Woods era. Thus, the real exchange rate behavior may not be so different after all but simply perceived to be so because of the use of previously restrictive unit root tests.

Fractional integration, stable distributions and long-memory models of foreign exchange rates

A major issue in financial economics is the behavior of asset returns over long horizon as opposed to short horizons. This study provides empirical evidence from the perspective of long memory analysis. Evidence of long memory is explored using international currency prices for fourteen countries. The measure of long-term persistence employed is the modified rescaled range statistic proposed by Lo (1991), which tests for long-range dependence after having accounted for a wide range of short-memory processes. Further analysis is conducted on the squared and absolute returns of the series, using the procedure proposed by Geweke and Porter-Hudak (1983). The empirical results provide strong support for long memory in international currency returns, squared returns and absolute returns. Most of the d estimates fall in the range of (0, 1/2), a characteristic of the hyperbolic decay of the autocorrelation function of ARFIMA models in their ability of capturing the long memory property. These findings suggest that models of exchange rate should be made to accommodate the long memory in the conditional mean and variance of the returns.A related issue is the performance in finite samples of the different tests and estimators under Stable-ARFIMA process. Using Monte Carlo simulations, it is found that the traditional and modified R/S behaves in a similar fashion. Different estimators of the long-memory parameter are then compared for processes with stable errors

Connectedness among fan tokens and stocks of football clubs

This paper examines the dynamic connectedness among the fan tokens and their corresponding stocks using the TVP-VAR approach. We use daily data from December 11, 2020, to January 31, 2022, for the Juventus FC, AS Roma, Galatasaray, and Trabzonspor tokens and stocks. Our results indicate that shocks transmitted to any token are larger than the ones to the stocks, with the tokens being the net transmitters of shocks to both the tokens and stocks. Then, our results indicate that the two asset classes are considered independent of each other, with the total connectedness decreasing over time, and indicating that less than 10% of the contributions in any token (stock) is from the stocks (remaining stocks). This implies that the idiosyncratic contri-butions to the variations in the utilized group of assets are considerably low when compared to the system contributions. Finally, we provide some implications for investment and portfolio management