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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)

Journal of Chinese Economic and Foreign Trade Studies

ISSN: 1754-4408

Article publication date: 27 June 2024

Issue publication date: 15 November 2024

97

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 daily and 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-linear linkage among Middle Eastern stock markets. A correlation approach was used in this study to determine the type of linear connectivity between Middle Eastern stock markets. The study used monthly and daily data sets covering the years 2011 to 2021 to investigate the linkage between stock returns and the volatility spillover between the stock markets in Palestine, Jordan, Syria and Lebanon, both before and during COVID-19. To understand the types of relationships between markets before and during COVID-19, the daily data set was split into two periods.

Findings

Results from the pre-COVID-19 suggest that the Syria stock market is not related to any stock market in the Middle East markets; 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 East stock markets. Overall, the results indicate the existence of increased linkage during the COVID-19.

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 the data cannot be generalized to all other Middle Eastern countries; rather, the conclusions drawn can only be applied to these four countries. This is especially true if the scholars collected most of the necessary data but were unable to obtain certain data for various reasons.

Practical implications

These findings have implications for risk management, market regulation and the growth of local stock markets. Facilitating the growth of smaller, more specialized markets to improve integration with other Middle Eastern markets is one of the goals of the domestic stock market development policy. To ensure financial stability, Middle Eastern stock market linking policies should consider spillover risk and take steps to minimize it. Enhancing the range of investment opportunities accessible 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 investment and local economic growth but also lay groundwork for 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 Middle 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

Acknowledgements

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.

Citation

Al-Khazaleh, S., Badwan, D.N., Eriqat, I. and El Shlmani, Z. (2024), "COVID-19 pandemic and linkage between stock markets in Middle Eastern countries", Journal of Chinese Economic and Foreign Trade Studies, Vol. 17 No. 2/3, pp. 112-132. https://doi.org/10.1108/JCEFTS-01-2024-0010

Publisher

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Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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