COVID-19 pandemic and linkage between stock markets in Middle Eastern countries
| Date | 27 June 2024 |
| Pages | 112-132 |
| DOI | https://doi.org/10.1108/JCEFTS-01-2024-0010 |
| Published date | 27 June 2024 |
| Author | Suhaib Al-Khazaleh,Nemer Badwan,Ibrahim Eriqat,Zahra El Shlmani |
COVID-19 pandemic and linkage
between stock markets in
Middle Eastern countries
Suhaib Al-Khazaleh
School of Business, Luminus Technical University College, Amman, Jordan and
Department of Finance, Faculty of Business, Amman, Jordan
Nemer Badwan
Computerized of Finance and Banking Sciences Department,
Faculty of Business and Economics, Palestine Technical University-Kadoorie (PTUK),
Tulkarm, State of Palestine
Ibrahim Eriqat
School of Management, Universiti Sains Malaysia, Minden, Malaysia and
School of Accounting and Finance, Asia Pacific University of Technology and
Innovation (APU), Kuala Lumpur, Malaysia, and
Zahra El Shlmani
School of Management, Universiti Sains Malaysia, Minden, Malaysia
Abstract
Purpose –The purpose of this study is to evaluate the linkage between stock markets in Middle Eastern
countries before and during the COVID-19 pandemic by using dailyand monthly data sets for the period from
2011 to 2021.
Design/methodology/approach –The multivariate BEKK-GARCH model was computed to evaluate
the existence of non-linearlinkage among Middle Eastern stock markets. A correlationapproach was used in
this study todetermine the type of linear connectivity betweenMiddle Eastern stock markets. The studyused
monthly and daily data sets coveringthe years 2011 to 2021 to investigate the linkage between stock returns
and the volatility spillover between the stockmarkets in Palestine, Jordan, Syria and Lebanon, both before
and during COVID-19. To understandthe types of relationships between markets before and during COVID-
19, the dailydata set was split into two periods.
Findings –Results from the pre-COVID-19suggest that the Syria stock market is not related to any stock
market in the Middle Eastmarkets; the Palestine and Lebanon stock markets exhibit a weak relationship,but
Jordan and Palestine stock markets are strongly linked. Conversely, results from COVID-19 evince a very
strong bidirectional volatility spillover between Middle Eaststock markets. Overall, the results indicate the
existenceof increased linkage during the COVID-19.
JEL classification –F36, G15, G40, I18
The authors express their appreciation and thanks to the Emerald Publishing Group, and they extend
special thanks to the “Journal of Chinese Economic and Foreign Trade Studies”, which will receive the
paper and help to publish it and great thanks and appreciation to the journal’s reviewers and its
editorial board for their valuable comments and suggestions, which will help to improve the quality
of the paper and bring it to the level required for publication.
Funding statement: The authors disclosed that no financial support was received for the current
research.
Disclosure statement: The authors reported no potential conflict of interest.
JCEFTS
17,2/3
112
Journalof Chinese Economic and
ForeignTrade Studies
Vol.17 No. 2/3, 2024
pp. 112-132
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-01-2024-0010
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1754-4408.htm
RETRACTED
Research limitations/implications –The data collection on a daily and monthly basis, both before
and during COVID-19,presents certain limitations for the paper. Another limitation is that thedata cannot be
generalized to all other Middle Easterncountries; rather, the conclusions drawn can only be applied to these
four countries. This is especiallytrue if the scholars collected most of the necessary data but were unable to
obtain certaindata for various reasons.
Practical implications –These findings have implicationsfor risk management, market regulation and
the growth of local stock markets. Facilitating the growth of smaller, more specialized markets to improve
integration with other MiddleEastern markets is one of the goals of the domestic stock market development
policy. To ensure financial stability, MiddleEastern stock market linking policies should consider spillover
risk and take stepsto minimize it. Enhancing the range of investment opportunitiesaccessible to shareholders
and functioning as confidential risk-sharing mechanisms to facilitate improved risk management in Middle
Eastern stock markets will not only significantly influence the mobilization of private capital to promote
investmentand local economic growth but also lay groundworkfor integrated market platforms.
Originality/value –This paper adds to the body of literature by demonstrating the nature of the connections
between these small markets and the larger markets in the Middle East region. Information from the smaller
markets provides institutional insights that enhance the body of existing research, guide the formulation of
evidence-based policies and advance financial literacy in these markets. This study contributes by comparing data
from different stock markets to better understand the type and strength of the link and relationship between Mid dle
Eastern stock markets, as well as any underlying or reinforcing factors that might have contributed to the
relationship and the specific types of links that these markets shared prior and during COVID-19.
Keywords COVID-19 pandemic, Correlation, Middle East stock markets,
Financial markets integration, Stock market linkage, Volatility spillover
Paper type Research paper
1. Introduction
The objective of this study was to examine the nature of the linkage between Middle East stock
markets before and during the coronavirus pandemic. Specifically, the study sought to
establish the direction and magnitude of the return relationship and volatility sp illover between
Palestine, Jordan, Lebanon and Syria stock markets before and during the coronavirus
pandemic. The study focused on Middle East stock markets as one of the sub-regional
integration arrangements in Asia. One of the compelling justifications for establishing Middle
East stock markets was to promote economic development through sub-regional linkage. Its
members include Palestine, Jordan, Lebanon, Syria, Iraq and Iran. The six member states
maintain a common external tariff, share customs revenues and coordinate policies and
decision-making on a wide range of economic issues. To further strengthen financial linkage,
four of the six member countries formed the Mediterranean and Middle East.
Akbari and Ng (2020) asserts that Middle Eaststock markets and arrangements
minimize transactioncosts for cross-border trade and investment as well as contribute to the
preservation of price and financial stability. These advantages are expected to catalyze
linkage among the markets in the sub-region since they imply minimal and/or absence of
major internationalinvestment barriers (Bekaert and Harvey, 1995;Feng and Stewart, 2015).
Economic theory predicts many important implications for financial market linkage including
broadening the range of financial assets and investment opportunities available to participants
within the linked markets, strengthening the maturation of the component market and fostering
healthy competition in the provision of financial services as well as allowing risk sharing
opportunities that protect investors against financial cycles in the domestic economies (Park,
2013;Dorodnykh, 2014;Kikuchi et al.,2018;Emenike, 2021a;Wu et al.,2022;Insaidoo et al.,2021).
Evidence-based knowledge of the nature of stock market linkage also provides the basis for
diversification, risk management and market regulation. The effectiveness of the diversification
policy, for example, depends on the magnitude of the linkage between stock markets (Vo and
COVID-19
pandemic and
linkage
113
RETRACTED
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