Contagion Effect and Change in the Dependence between Oil and Ten MENA Stock Markets
In this paper, we study the contagion effect between energy and stock markets in ten MENA countries during the recent global financial crisis 2007- 2009. In particular, we verify whether this effect depends on the country’s oil position. For that, we investigate the dependence structure between oil price changes and stock market returns using different copula functions. Specifically, we test for changing in dependence structure using the local change point (LCP) testing procedure. The empirical results provide strong evidence of asymmetric dependence structure between oil price changes and stock market returns for all countries. In addition, this dependence structure is larger in oil-exporters than oil-importers. Furthermore, there is significant change in this dependence structure. For all countries (except Kuwait and Jordan), the copula parameters and the tail dependence coefficients are greater during crisis periods than calm ones, thus indicating the presence of a contagion effect.
Heni Boubaker*, Nadia Sghaier
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