Investigating Contemporaneous and Lagged R2 Connectedness Among MENAT Stock Market Returns and the Global Energy Uncertainty Index


Tedik Kocakaya B., Aydın E., Evrim Mandacı P.

20 th INTERNATIONAL CONFERENCE OF MEEA, İstanbul, Turkey, 13 - 14 September 2024

  • Publication Type: Conference Paper / Unpublished
  • City: İstanbul
  • Country: Turkey
  • Dokuz Eylül University Affiliated: Yes

Abstract

This study aims to investigate the decomposed relationship among nine stock market returns, including MENAT countries such as Israel, Egypt, United Arab Emirates, Jordan, Bahrain, Lebanon, Oman, Qatar, and Türkiye as well as global energy-related uncertainty index (EUI) using monthly data from February 2007 to October 2022. The model itself decomposes R2 into two, namely contemporaneous and lagged. Contemporaneous From and To results dominate the overall connectedness and thus indicate higher measures than lagged values except for EUI. According to overall connectedness results, the United Arab Emirates is the main net transmitter of spillover, followed by Oman. At the same time, Türkiye’s stock market acts as the main net receiver, followed by Lebanon. The empirical findings show that events such as the GFC, Arab Spring, oil price volatility, pandemic, and geopolitical conflicts in the region (e.g., Syria, Yemen, Libya) have intensified the network connectedness. On average, the overall TCI explains 53.06% of the variation while the primary is found in the contemporaneous part with 36.33%, while the lagged part explains only the variance of 16.73%. The model is robust because we get quite similar findings from the Spearman correlation coefficient. The result of this study on the relationship between MENAT stock markets and EUI is expected to be valuable for investors, policymakers, and portfolio managers.