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International Portfolio Diversification in the Middle East Region

Ghadiri, Alireza | 2008

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 39072 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Zamani, Shiva; Vaziri, Mohammad Taghi
  7. Abstract:
  8. This research focuses on the topic of international portfolio diversification and its core attention is entitled to Middle East stock exchanges, as emergent markets. These markets are not analyzed yet as investment destinations for developed countries investors. Although all methodologies in this research are applied on ME markets data, but can be augmented and generalized for other markets. In this quest, we tried to investigate portfolio diversification opportunity for European (generally Frankfurt & Paris stock exchanges) or American investors with ME stock exchanges including Tehran, Istanbul, Saudi Arabia Tadawul, Abu Dhabi & Cairo stock exchanges, in order to reduce risk and increase performance of the portfolio, both in short term and long term. So in first step, correlations between returns of the above markets are analyzed, as a survey for short term and midterm investment. Low correlations or even negative are benefits for such portfolio diversification, however correlation analysis cannot satisfy longer investment horizons. So it is required to check for co-integration relations between mentioned markets. These long run relations generally can occur due to similar economical and financial policies in markets, which cause to similar market trends in long run and are not desirable for long term portfolio diversification. Therefore in order to portfolio diversification in long run, markets in portfolio should not be co-integrated or at least be co-integrated of low rank. Thus in the next step, we use Johansen Multivariate Co-integration Test for investigating long run relations. According to results, there is low correlation between ME markets and European or American markets. In 3 considered sceneries, ME markets are co-integrated with investor origin market (Frankfurt, Paris or S&P 500), however co-integration relations are limited (one or two), as for Frankfurt market scenery, there is only 1 co-integration equation and therefore Frankfurt market investors may benefit more from portfolio diversification with ME markets
  9. Keywords:
  10. Stock Market ; Solidarity ; International Portfolio Diversification ; Co-Integration ; Middle East

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