Contents of the volume

2019, Volume 72 - Issue 4

ISSN: 2499-8265
RSS feed citation: At RePEc
Publication date: 04 November 2019

1948-2018: FROM THE FREE-TRADE VISION TO PROTECTIONIST ATTITUDE

Nicola Acocella

Read the article

THE SUPPLY CHAIN ECONOMY: HOW FAR DOES IT SPREAD IN SPACE AND TIME?

Miroslav N. Jovanovic

Read the article

DISSECTING THE INPUT-OUTPUT STRUCTURE OF THE GREEK ECONOMY 2005-2010

Theodore Mariolis, Eirini Leriou, George Soklis

Read the article

TESTING FOR FINANCIAL MARKET INTEGRATION OF THE UAE MARKET WITH THE GLOBAL MARKET

Abdulnasser Hatemi-J, Safa Al-Mohana

Read the article

TESTING FOR CONVERGENCE IN PER CAPITA INCOME WITHIN ECOWAS

Emmanuel Anoruo

Read the article

DOES CORRUPTION HAMPER INWARD FDI IN SOUTH AFRICA FROM OTHER AFRICAN COUNTRIES? A GRAVITY MODEL ANALYSIS

Teboho Jeremiah Mosikari, Joel H. Eita, T. Confidence Nthebe

Read the article

ACKNOWLEDGEMENT TO REFEREES

Amedeo Amato

Read the article

Genoa Chamber of Commerce
Economia Internazionale / International Economics

< Back

Corresponding author

Abdulnasser HATEMI-J, Department of Economics and Finance, College of Business and Economics, United Arab Emirates University

Co-authors

Safa AL-MOHANA, Department of Economics and Finance, College of Business and Economics, UAE University, Al Ain, UAE

Testing for Financial Market Integration of the UAE Market with the Global Market

Pages

475-492

Abstract

This paper investigates empirically whether or not the UAE financial market is integrated with the global financial market. A battery of diagnostic tests are performed to check for the fulfillment of statistical assumptions for a good model. The results show that the underlying data is non-normal and multivariate ARCH effects exist. Thus, we make use of bootstrap simulations with leverage adjustments in order to produce reliable critical values. Both symmetric and asymmetric causality tests are implemented. Our empirical findings indicate that the global market is negatively impacting the UAE market based on the symmetric causality test results. Nonetheless, when the asymmetric causality tests are implemented we find that a positive and permanent shock in the global market results in a positive shock in the UAE market. Similar results are found for negative shocks. Furthermore, the results show that a negative shock has a stronger causal impact than a positive shock. This means that the UAE financial market is integrated with the global market because it reacts to both positive and negative movements in this market. Policy makers might need to observe that the reaction to falling markets is stronger than to rising markets and that they should design their policy strategies accordingly.

JEL classification

C32, F16, G15

Keywords

Financial Market Integration, Asymmetric Causality, The UAE

Index

  1. Introduction
  2. Literature review
  3. Data, methodology and test results
  4. Conclusions

Bibliography

Ahmad, K.M., S. Ashraf and S. Ahmed (2005), “Is the Indian Market Integrated with the US and Japanese Markets? An Empirical Analysis”, South Asia Economic Journal, 6(2), 193-206.
Alam, M.I. and T. Hasan (2003), “The Causality between Stock Market Development and Economic Growth: Evidence from the United States”, Studies in Economics and Finance, 21(1), 93-104.
Alawadi, A.M. (2018), On Identifying Successful Financial Strategies for the Listed Companies in the United Arab Emirates: An Empirical Approach, Doctoral Dissertation, The UAE University.
Al-Mohana, S. (2015), An Empirical Investigation of the UAE Stock Markets, Doctoral Dissertation, The UAE University.
Al-Shayeb, A. and A. Hatemi-J (2014), “The Performance of the Banking Sector in the UAE”, Economia Internazionale/International Economics, 67(4), 439-448.
Al-Shayeb, A. and A. Hatemi-J (2016), “Trade Openness and Economic Development in the UAE: An Asymmetric Approach”, Journal of Economic Studies, 43(4), 587-597.
Bekaert, G. and C. Harvey. (1995), “Time Varying World Market Integration”, Journal of Finance, 50(2), 403-444.
Boujir, A. and A. Lahrech (2008), “Morocco & US Equity Markets Linkage after FTA Signature: Implications for International Portfolio Diversification”, International Research Journal of Finance and Economics, 21(2), 112-123.
Chang, T. and C-C. Nieh (2001), “International Transmission of Stock Price Movements among Taiwan and its Trading Partners: Hong Kong, Japan and the United States”, Review of Pacific Basin Financial Markets and Policies, 4(4), 379-401.
Chen, G-M., M. Firth and O.M. Rui (2002), “Stock Market Linkages: Evidence from Latin America”, Journal of Banking & Finance, 26(6), 1113-11141.
Doornik, J.A. and H. Hansen (2008), “An Omnibus Test for Univariate and Multivariate Normality”, Oxford Bulletin of Economics and Statistics, 70(s1), 927-939.
Ewing, B.T., J.E. Payne and C. Sowell (1999), “NAFTA and North American Stock Market Linkages: An Empirical Note”, North American Journal of Economics and Finance, 10(2), 443-451.
Fratzscher, M. (2002), “Financial Market Integration in Europe: On the Effects of EMU on Stock Markets”, International Journal of Finance & Economics, 7(3), 165-193.
Gjerde, O. and F. Saettem (1995), “Linkages among European and World Stock Markets”, The European Journal of Finance, 1(2), 165-179.
Gklezakou, T. and J. Mylonakis (2009), “Interdependence of the Developing Stock Markets, before and during the Economic Crisis: The Case of South Europe”, Journal of Money, Investment and Banking, 11(1), 70-78.
Goh, K-L., Y-C. Wong and K-L. Kok (2005), “Financial Crisis and Intertemporal Linkages across the ASEAN-5 Stock Markets”, Review of Quantitative Finance and Accounting, 24(4), 359-377.
Granger, C.W.J. (1969), “Investigating Causal Relations by Econometric Models and Cross Spectral Methods”, Econometrica, 37(3), 424-438.
Gutiérrez, L. and J. Otero (2007), “Testing for Stock Market Integration in a Developing Economy: Colombia”, Applied Financial Economics Letters, 3(4), 231-236.
Hacker, R.S. and A. Hatemi-J (2005), “A Test for Multivariate ARCH Effects”, Applied Economics Letters, 12(7), 411-417.
Hacker, R.S. and A. Hatemi-J (2006), “Tests for Causality between Integrated Variables using Asymptotic and Bootstrap Distributions: Theory and Application”, Applied Economics, 38(13), 1489-1500.
Hacker, R.S. and A. Hatemi-J (2009), HH Test: GAUSS Module to Implement Bootstrap Test for Causality with Leverage Adjustments. Statistical Software Components G00005, Boston College Department of Economics. Available from: <https://ideas.repec.org/c/boc/bocode/g00005.html>.
Hacker, R.S. and A. Hatemi-J (2012), “A Bootstrap Test for Causality with Endogenous Lag Length Choice: Theory and Application in Finance”, Journal of Economic Studies, 39(2), 144-160.
Hamao, Y., R.W. Masulis and V. Ng (1990), “Correlations in Price Changes and Volatility across International Stock Markets”, Review of Financial Studies, 3(2), 281-307.
Hammoudeh, S. and K. Choi (2006), “Behavior of GCC Stock Markets and Impacts of US Oil and Financial Markets”, Research in International Business and Finance, 20(1), 22-44.
Hardouvelis, G.A., D. Malliaropulos and R. Priestly (2006), “EMU and European Stock Market Integration”, Journal of Business, 79(1), 365-392.
Hassan, M.K. and A. Naka (1996), “Short-run and Long-run Dynamic Linkages among International Stock Markets”, International Review of Economic and Finance, 5(4), 387-405.
Hatemi-J, A. (2001), Time-Series Econometrics Applied to Macroeconomic Issues, PhD Thesis, Jonkoping University, Sweden.
Hatemi-J, A. (2002), “Money Supply and the Informational Efficiency of the Stock Market in Korea: Evidence from an Alternative Methodology”, Journal of Economic Integration, 17(3), 517-526.
Hatemi-J, A. (2003), “A New Method to Choose Optimal Lag Order in Stable and Unstable VAR Models”, Applied Economics Letters, 10(3), 135-137.
Hatemi-J, A. (2008), “Forecasting Properties of a New Method to Choose Optimal Lag Order in Stable and Unstable VAR Models”, Applied Economics Letters, 15(4), 239-243.
Hatemi-J, A. (2011), AC Test: GAUSS Module to Apply Asymmetric Causality Tests. Statistical Software Components G00014, Boston College Department of Economics. Available from: <https://ideas.repec.org/c/boc/bocode/g00014.html>.
Hatemi-J, A. (2012a), “Asymmetric Causality Tests with an Application”, Empirical Economics, 43(1), 447-456.
Hatemi-J, A. (2012b), “Is the UAE Stock Market Integrated with the USA Stock Market? New Evidence from Asymmetric Causality Testing”, Research in International Business and Finance, 26(2), 273-280.
Hatemi-J, A., and E. Roca (2004a), “An Examination of the Equity Market Price Linkage between Australia and the European Union using Leveraged Bootstrap Method”, European Journal of Finance, 10 (6), 475-488.
Hatemi-J, A. and E. Roca (2004b), “Do Birds of the same Feather Flock together? The Case of the Chinese States Equity Markets”, Journal of International Financial Markets, Institutions and Money, 14(3) 281-294.
Ibrahim, M.H. (2005), “International Linkage of Stock Prices: The Case of Indonesia”, Management Research News, 28(4), 93-115.
Jawadi, F. and M.E.H. Arouri (2008), “Are American and French Stock Markets Integrated?”, The International Journal of Business and Finance Research, 2(2), 107-116.
Johnson, R. and L. Soenen (2002), “Economic Integration and Stock Market Comovements in the Americas”, Journal of Multinational Financial Management, 13(1), 85-100.
Karagoz, K. and S. Ergun (2010), “Stock Market Integration among Balkan Countries”, MIBES Transactions, 4(1), 49-59.
Karim, M.Z.A. and C.S. Gee (2006), “Stock Market Integration between Malaysia and its major Trading Partners (1994-2002)”, Applied Econometrics and International Development, 6(3), 203-224.
Kazi, M.H. (2008), “Is Australian Stock Market Integrated to the Equity Markets of its major Trading Partners”, International Review of Business Research Papers, 4(5), 247-257.
Kim, J. and A. Shamsuddin (2003), “Integration and Interdependence of Stock and Foreign Exchange Markets: An Australian Perspective”, Journal of International Financial Markets Institutions and Money, 13(3), 237-254.
Majid, M.S.A., A.K.M. Meera and M.A. Omar (2008), “Interdependence of ASEAN-5 Stock Markets from the US and Japan”, Global Economic Review, 37(2), 201-225.
Majid, M.S.A., R.M. Yusof and A.N. Razal (2006), “Dynamic Financial Linkages among Selected OIC Countries: Evidences from the post-September 11”, Paper presented at 6th Global Conference on Business and Economics, USA, 15-17 October.
Malkamaki. M., T. Martikainen, J. Perttunen and V. Puttonen (1993), “On the Causality and Co-movements of Scandinavian Stock Market Returns”, Scandinavian Journal of Management, 9(1), 67-76.
Markellos, R.N. and C. Siriopoulos (1997), “Diversification Benefits in the smaller European Stock Markets”, International Advances in Economic Research, 3(2), 142-153.
Masih, A.M.M. and R. Masih (1997), “Dynamic Linkages and the Propagation Mechanism Driving Major International Stock Markets: An Analysis of the pre- and post-Crash Eras", The Quarterly of Economics and Finance, 37(4), 859-885.
Masih, A.M.M. and R. Masih (1999), “Are Asian Stock Market Fluctuations due Mainly to Intra-Regional Contagion Effects? Evidence based on Asian Emerging Stock Markets”, Pacific Basin Finance Journal, 7(3-4), 251-282.
Maysami, R.C. and T.S. Koh (2000), “A Vector Error Correction Model of the Singapore Stock Market”, International Review of Economic and Finance, 9(1), 79-96.
Mcandrews, J. and C. Stefanadis (2002), “The Consolidation of European Stock Exchanges, Federal Reserve Bank of New York”, Current Issues in Economics and Finance, 8(2), 1-6.
Mukhopadhyay, B. (2009), “Financial Market Integration: the Indian Experience", Review of Market Integration, 1(1), 37-60.
Perron, P. (1989), “The Great Crash, the Oil Price Shock and the Unit Root Hypothesis”, Econometrica, 57(6), 1361-1401.
Phylaktis, K. and F. Ravazzolo (2005), “Stock Market Linkages in Emerging Markets: Implications for International Portfolio Diversification”, Journal of International Financial Markets, Institutions and Money, 15(2), 91-106.
Seabra, F. (2001), “A Co-Integration Analysis between Mercosur and International Stock Markets”, Applied Economics Letters, 8(7), 475-478.
Siddiqui, S. (2008), “Exploring Integration between Selected European Market Indexes and Sensex”, Pranjana, 11(2), 79-95.
Siddiqui, S. and N. Seth (2010), “Probing Relations between S&P CNX Nifty, BSE 30 and Shanghai Composite”, Management Dynamics, 10(1), 71-79.
Simpson, J. and J. Evans (2004), “Interdependence in Gulf Cooperating Stock Markets, Working Paper Series No. 4, University of Wollongong, Dubai.
Tai, C.S. (2007), “Market Integration and Contagion: Evidence from Asian Emerging Stock and Foreign Exchange Markets”, Emerging Markets Review, 8(4), 264-283.
Toda, H.Y. and T. Yamamoto (1995), “Statistical Inference in Vector Autoregressions with Possibly Integrated Processes”, Journal of Econometrics, 66(1-2), 225-250.
Wang, P. and T. Moore (2008), “Stock Market Integration for the Transition Economies: Time-Varying Conditional Correlation Approach”, Manchester School, 76(s1), 116-133.
Yi, Z. and S-L. Tan (2009), “An Empirical Analysis of Stock Markets Integration: Comparison Study of Singapore and Malaysia”, Singapore Economic Review, 54(2), 217-232.
Yusof, R.M. and M.S.A. Majid (2006), “Who Moves the Malaysian Stock Market - the US or Japan? Empirical Evidence from the pre-, during, and post-1997 Asian Crisis”, Gadjah Mada International Journal of Business, 8(3), 137-178.
Zhang, Y. (2009), “Linkages of Stock Prices in Major Asian Markets and the United States”, International Conference on Econometrics and the World Economy. The Center for Advanced Economic Study (CAES) Fukuoka University, Fukuoka, Japan.