Dynamic relationships between Middle East stock markets

Purpose – The aim of this paper is to examine the dynamic relationships between Middle East stock markets. Design/methodology/approach – Daily data from the Egyptian (CMA) and Israeli Tel Aviv Stock Exchange (TASE-100) stock indices are considered. The paper employs a Bivariate cointegration GARCH(1,1) model to explain price discovery and lead-lag relationships for the period July 1997 – August 2007. Findings – Empirical results confirm that the Egyptian market plays a price discovery role, implying that CMA prices contain useful information about TASE-100 prices. CMA market is more informationally efficient than TASE-100 market. Further, CMA index reflects new information faster than TASE-100 index. Research limitations/implications – Future research should examine the dynamic relationships between Middle East stock markets using intraday (high frequency) data and recent dynamic (long memory) methods. Practical implications – The findings are helpful to financial managers and traders dealing with Middle East stock markets. Originality/value – The contribution of this paper is to provide evidence on the stock market dynamics and financial linkages between two Middle East emerging markets using recent daily data and a modern econometric model. To the best of the author's knowledge, no previous study has tested the dynamic relationships between daily prices of CMA and TASE-100.