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

Author

Listed:
  • Hatemi-J, Abdulnasser

    (Department of Economics and Finance, College of Business and Economics, UAE University, Al Ain, UAE)

  • Al-Mohana, Safa

    (Department of Economics and Finance, College of Business and Economics, UAE University, Al Ain, UAE)

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. Test sull’integrazione del mercato finanziario degli Emirati Arabi Uniti con il mercato globale Lo scopo di questo studio è analizzare empiricamente se il mercato finanziario degli Emirati Arabi Uniti è integrato con il mercato finanziario globale. È stata effettuata una serie di test diagnostici per accertare se le ipotesi statistiche di un buon modello sono rispettate. I risultati mostrano che i dati in oggetto non sono distribuiti normalmente e vi sono effetti ARCH multivariati. Quindi sono state effettuate simulazioni bootstrap con leverage aggiustamenti al fine di ottenere valori critici affidabili. Sia i test simmetrici che quelli asimmetrici di causalità sono stati effettuati. Sulla base dei risultati dei test simmetrici di causalità vi sono evidenze che il mercato globale ha influenzato negativamente quello degli Emirati Arabi Uniti. Ciononostante, dai risultati dei test asimmetrici di causalità si evince che uno shock positivo e permanente nel mercato globale causa uno shock positivo nel mercato degli Emirati Arabi Uniti. Gli shock negativi hanno dato risultati simili. Inoltre vi sono evidenze che uno shock negativo ha un impatto causale più forte che uno shock positivo.

Suggested Citation

  • Hatemi-J, Abdulnasser & Al-Mohana, Safa, 2019. "Testing for Financial Market Integration of the UAE Market with the Global Market," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(4), pages 475-492.
    • Handle: RePEc:ris:ecoint:0857
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    More about this item

    Keywords

    Financial Market Integration; Asymmetric Causality; The UAE;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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