Evidence on the Speed of Convergence to Market Efficiency

Developed and well regulated financial markets are usually seen as a precondition for an efficient allocation of resources and can foster long term economic growth. This paper explores the institutional determinants for financial development in the countries of the Middle East and North African (MENA) region. Institutional conditions are from the International Country Risk Guide. Panel‐econometric techniques are applied to assess the development in the banking sector and the stock market. As a main finding, institutional conditions are important in both financial segments, even after controlling for standard macroeconomic determinants and fixed effects. For the banking sector, corruption seems to be most decisive. For the stock market, the impact of corruption and law and order appear to be relevant. While per capita income and inflation do not seem to play a vital role, openness to foreign trade is quite important for all areas of financial development. Hence, overall, faster real economic integration is of key policy priority to improve financial development as a condition for higher GDP growth. Better law and enforcement practices and anti‐corruption policies are strategies to accompany this process.

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Institutional Determinants of Financial Development in MENA Countries

Hurst exponent behavior and assessment of the MENA stock markets efficiency

Abstract: This paper examines the long-run convergence of the United States and 22 other developed and developing countries. I use daily data and run the Johansen (1988) and the Gregory and Hansen (1996) test to show that stock markets of most countries have become cointegrated by 2010. I also look at short-run diversification opportunities across the countries by comparing their daily returns to the daily returns of the global index (S&P 1200). China, Malaysia and Austria stand out as countries with highly favorable diversification opportunities as they are not cointegrated about with the US and are insensitive to the global index. Finally, I use the relative risk of each country (obtained from the CAPM model) to measure performance of each country over the great recession of the 2000s. I find that the relative risk of a country is a good predictor of country performance in a recession.

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Cointegration of International Stock Markets: An Investigation of Diversification Opportunities

Corruption has affected systems of governance for thousands of years. Existing evidence suggests that it is especially common in "emerging and developing economies," yet cross-country analysis in this context is rare. We examine the impact of political, economic, and media freedom on corruption in a large sample of countries across multiple time periods to investigate the marginal differences within each. The results show that increased economic and press freedoms are associated with lower levels of corruption in developing countries. We find that although increased political freedom through democratization is statistically significant, it reduces corruption only in developed countries and may increase levels of corruption in developing countries.

Corruption in Emerging and Developing Economies: Evidence from a Pooled Cross-Section

This paper compares market emergence in the Middle and East and North African (MENA) region with other emerging markets. We first consider the main components of market emergence, including the size, depth, activity, and transparency of the market, and proceed to a descriptive analysis. Aggregating these observations into four bootstrapped indexes, we analyze the factors leading to market emergence with a probit model. We find that market size and activity seem to affect market emergence, whereas pricing and transparency do not. Finally, decomposing country-level probabilities and implementing a cluster analysis suggest that the average process of market emergence is more pronounced in the MENA region than it is in other emerging areas, such as Latin America and Eastern Europe. Overall, the results suggest that the MENA capital markets may attract more capital flows in the future. However, the markets are still heterogeneous: Whereas Turkey, Israel, Jordan, and Egypt are moving closer to the standards of developed countries, Lebanon, Tunisia, and Morocco can still be viewed as frontier markets.

T. Lagoarde-Segot

Papers

The Capital Markets of the Middle East and North Africa (MENA) Region: Situation and Characteristics