14
6 0.0806
12 0.0063
18 0.0022
No serial correlation or autocorrelation exists
run Residuals of the Model) -
Chart 2: CUSUM Test (on Short
CUSUM analysis (or cumulative sum of residual test) is an important tool in econometric modeling. It is employed to tackle diagnostic problems related to parameter instability. From Chart 2 above representing CUSUM analysis, existence of parameter (short-run and long-run parameters) stability is confirmed, the short-run residuals lying within the lower and upper boundaries. As a whole, the predictive model developed from this study can be considered credible since no major diagnostic shortcoming were met in the tested model.
Table 14
Simple Impulse Response by Variable
Variable
Response\Impulse
Lag PEX EGX 1 1.14128 0.00048
2 1.04910 0.00073 3 0.92539 0.00960 4 0.81123 0.00113 5 0.71622 0.00127 6 0.63915 0.00138 7 0.57729 0.00147 8 0.52777 0.00154 9 0.48819 0.00160 10 0.45655 0.00164
c
-40 -30 -20 -10 0 10 20 30 40
time
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180
15
11 0.43128 0.00168 12 0.41108 0.00171 13 0.39494 0.00173 14 0.38205 0.00175 15 0.37174 0.00177 16 0.36351 0.00178 17 0.35693 0.00179 18 0.35168 0.00180 19 0.34748 0.00180 20 0.34412 0.00181 EGX
1 ‐29.12128 0.67841 2 ‐6.08465 0.70736 3 11.25151 0.65837 4 28.30599 0.63764 5 41.92434 0.61643 6 53.02835 0.60067 7 61.90455 0.58779 8 69.01228 0.57757 9 74.69200 0.56938 10 79.23123 0.56284 11 82.85816 0.55762 12 85.75617 0.55345 13 88.07170 0.55011 14 89.92183 0.54745 15 91.40009 0.54532 16 92.58123 0.54362 17 93.52496 0.54226 18 94.27901 0.54117 19 94.88150 0.54030 20 95.36290 0.53900
Table 15
Variance Decomposition by Variable
Variable Lead PEX EGX
0.00000 1.00000
1
PEX
2 0.98267 0.01733
0.03768 0.96232
3
4 0.93577 0.06423
10 0.74139 0.25862
20 0.52385 0.47615
EGX PEX
Lead
Variable
EGX 1 0.00103 0.99897
0.99776 0.00224
2
3 0.00170 0.99830
4 0.00235 0.99765
10 0.03152 0.96848
20 0.08223 0.91777
CONCLUSION
The empirical findings from this study have proved that both PEX and EGX are cointegrated.
However, there is no significant short-term dynamic between the two markets indexes as shown by Granger Causality test. Analysis of dynamic interactions over the post-sample period indicated that PEX is the most endogenous of all. This is in line with our earlier expectation that performance of PEX would depend upon the movements in EGX. It is quite reasonable to argue the importance of an economic indicator such as market index in explaining the direction of an economic growth. Having known the equilibrium relationship between PEX and EGX, policy makers should devise an effective
105
16
approach in rejuvenating economic activities. Similarly, stock traders and value investors should use this piece of information to come out with a trading strategy that can protect value of their investment portfolio. CUSUM analysis in depicted in Chart 2 suggests that both short-run and long-run parameters are stable over the study period.
It is now evident that the Arab countries, particularly the neighboring ones like Egypt and Jordan, play vital roles in supporting the growth of Palestinian economy. Next to Amman Stock Exchange (ASE), EGX does exert spillover effect on the Palestinian economy. The results attained from this study clearly show the mutual benefits derived from international trade and portfolio investment involving the two countries. In particular, economic prosperity in Egypt will undoubtedly help boost Palestinian economy as the two countries share national borders, resources, language, culture and relatively same market structure. Moreover, the economic systems in Egypt and Palestine are mostly based on market economy with little government intervention. Hence, regional economic cooperation has to be improved between the two countries, which in turn help sustain long term economic growth.
The results from diagnostic tests are free from major drawbacks and support the adoption of the suggested estimation model in the study. Interestingly, the empirical results are also consistent with earlier studies. In a nutshell, the evidence presented here confirms the intuition (and also empirical evidence) that performances of regional stock markets are mutually dependent. It is strongly recommended that future research should incorporate other regional markets such as Turkey and Israel.
The study urges both Palestinian and Egyptian governments to review their respective foreign policy and emphasize on beefing up bilateral trades among themselves. The fact that business globalization is inevitable, devising an effective and dynamic policy is of utmost importance in maintaining regional economic prosperity in Middle East.
106
17
References:
1. Abdelkarim, N., and Ijbara, (2010) "Evidence on Corporate Governance Compliance by Palestine Securities Exchange Listed Firms". Global Journal of Business Research. Vol. 4, No. 3, pp. 73-88.
2. Abdelkarim, N., ( 2007) “Evaluation the application's endeavors of listing and disclosure systems in Palestine Securities Exchange” Working paper, First Annual Palestinian Capital Market Forum, Ramallah (Sep.8-9), Palestine. (In Arabic).
3. Abdelkarim, N., Yasser, S., and Arqawi, (2009) "Investor Perception of Information Disclosed in Financial Reports of Palestine Securities Exchange Listed Companies".
Accounting & Taxation Vol. 1, No. 1, pp. 45-61.
4. Abu-Rub, N. , and Sharba, T.(2010) " Calendar Effects in the Palestine Securities Exchange (PEX): Analysis & Investigation" unpublished paper page 1-6.
5. Abusharbeh, T. (2009), “Assessment of Financial Reporting and Disclosure Practices of Palestine Securities Exchange's listed companies in the light of Local Legal Requirements, International Accounting Standards and Investors Expectations.” Amman Arab University for Graduate Studies, Unpublished Doctoral Dissertation, Amman, Jordan. (In Arabic).
6. Arshanapalli, B. And Doukas, (1993) "International stock Market linkages: Evidence from the Pre- and Post-October 1987 Period" Journal of Banking & Finance, 17, 193-208.
7. Bekaert, G., Harvey, C.R., and Ng, Angela (2005). "Market integration and contagion".
Journal of Business, 78(1), 39-69.
8. Daniel, S., Samuel L. ,(2005) " Testing the Efficiency of Selected African Stock Markets"
http://ssrn.com/abstract=874808 or http://dx.doi.org/10.2139/ssrn.874808
9. Daraghma, Z. (2010) " Board of Directors, Management Ownership, and Capital Structure and Its Effect on Performance: The Case of Palestine Securities Exchange”. International journal of business and management Vol.5, No.11; November, page 119- 120.
10. Mohammad O., E L - E Q T E S A D I A, Wednesday - 07 March 2012, page 10, W W W.
E Q T E S A D I A. P S
107
18
www.eqtesadia.ps/pdf/0003.pdf
11. Hassan, A., Seyed, M., and Mark J., (2004) "An Analysis of Day-of-the-Week Effects in the Egyptian Stock Market "International Journal of Business, 9(3), 2004 issn: 1083−4346 12. Hassan, E., (2009),"New structure for regulating the capital market in Egypt"
http://ssrn.com/abstract=1562286.
13. Izquierdo, A.F. and Lafuente, J.A. (2004). "International transmission of stock exchange volatility: Empirical evidence from the Asian crisis" Global Finance Journal, 15, 125-37.
14. Abd Al- Mouti Z., Ministry of National Economy, Statistics Department, (2005)
"Palestinian Foreign Trade reality and future prospects" Arabic research. page 10-12 www.mne.gov.ps/MneModules/studies/Trade.pdf
15. Mohammad A., Salomon B, (1996) "Is MENA a Region? The Scope for Regional Integration" IMF working paper WP/96/30.
16. Mohie Eldin, M. and M. S. Sourial, (2000), “Institutional Aspects, Distributional Characteristics and Efficiency of Egyptian Securities Market,” in Arab Stock Markets:
Recent Trends and Performance, edited by Riad Dahe. Cairo: AUC Press, pp. 1−44.
17. Sheng, H.C. and Tu, A. (2000). "A Study of cointegration and variance decomposition among national equity indices before and during the period of the Asian financial crisis"
Journal of Multinational Financial Management, 10, 345-65.
18. Zoa'rob, H. (2005) "Testing the Operational efficiency of The Palestine Securities Exchange.". Research Paper presented to the First Scientific Meeting held in The Islamic University (April, 0 -9), Gaza, Palestine. (In Arabic).
108