| Summary: | This thesis examines the relationship between exchange rate changes and stock returns, focusing on six Middle East and North African emerging markets: Egypt, Kuwait, Morocco, Oman, Saudi Arabia and Turkey. The aforementioned relationship is explored at different levels of aggregation for the stock market (from country to finn level). Three papers are presented in this thesis. The first paper considers the linkage between stock prices and exchange rates in four Middle East emerging markets. In contrast to the existing evidence that uses a global market index to uncover such a relationship I find that for my sample countries oil prices emerge as the dominant factor in the above relationship. I consider the presence of regime shifts and I find evidence of cointegration only'for the period following the 1999 oil price shock. Readjustment towards equilibrium in each stock market occurs via oil price changes. Finally, I perfonn a number of robustness checks and produce persistence profiles. In the second paper, I examine the presence of volatility spillovers between nominal exchange rates and stock returns in three MENA countries: Egypt, 'Morocco and Turkey. The multivariate GARCH model which I use does not produce evidence of cross-market effects for the general stock indices returns. Nevertheless, bidirectional shock and volatility spillovers between exchange rates and sector stock returns exist at the industry sector level. Those findings are more pronounced in Egypt and Turkey. The different results are due to the different exchange rate regimes/policies adopted by the three countries. While exchange rates in Egypt and Turkey were allowed to float, Morocco followed a more tightly managed exchange rate regime. The third paper tests for the impact of announcing floating and devaluating the exchange rate on stock returns in three MENA countries namely, Egypt, Morocco and Turkey_ I, first, use the event study methodology put forward by Hilliard and Savickas (2002), testing for eventinduced, abnonnal volatility in the stock returns. I, then, use three different methodologies to testfor abnonnal returns. These are, first, the approach given by Brown and Warner (1980), and the remaining two, which control for event induced volatility, are based upon the study of Boehmer. Musumeci and Poulsen (1991), and upon the method fonnulated by Savickas (2003). I find clear evidences of abnonnal volatility and abnonnal return due to this event in Egypt and Turkey. but I could not find such evidence in Morocco
|
|---|
