International linkage among mena financial markets

Abstract

Despite the increasing interest on the topic of international transmission of financial markets, the MENA region has received little attention concerning linkage among financial markets. In fact, the MENA’s level of connectedness has declined during the last two decades. This paper investigates international linkage among the MENA financial markets by estimating the magnitudes and dynamics of connectedness measures across various combinations of markets and countries, in relation to US and Euro financial markets. The basic finding is that the connectedness among MENA countries seems rather weak, while US markets are an important source of network effects on financial markets in this region. Among the MENA countries, the Turkish markets show relatively high connectedness with advanced financial markets. We also observe time-varying patterns in the connectedness indices, with a surge during the global financial crisis. The observation suggests that new shocks occurred in one market can spread to other markets in different degrees, hence we need to assess the connectedness dynamics as well as the average connectedness.