The Jordanian Stock Market—Risk Diversification versus Performance?

queenrania.jpg
Thriving capital markets are the lifeblood of capitalism, with all of that economic system's attendant benefits. Capitalism is the best method yet devised of generating growth, raising living standards and reducing poverty.”
-Anne O. Krueger

A recent working paper from IMF on the “The Jordanian Stock Market--Should You Invest in it for Risk Diversification of Performance?” concludes;

“This study finds that the Amman Stock Exchange is integrated with Arab markets but not with other emerging and developed stock markets. We used both bivariate and multivariate cointegration approaches in our analysis. The multivariate approach shows that Arab stock markets are cointegrated and that they share one long-term equilibrium relationship. The bivariate approach shows that the Jordanian market is individually cointegrated with most Arab markets with the exception of Tunisia and Morocco. However, the results also show that the ASE is not cointegrated with other emerging and developed stock markets.

From this, we conclude that the Arab stock markets are integrated in an economic sense but that the integration is incomplete. The analysis found that there are five common stochastic trends driving the six stock markets. The five common stochastic trends could be attributed to outside factors determining the stock markets or to barriers to investment and trading among the countries. The countries in the study have common cultural characteristics; they also have implemented several deregulation and privatization projects, and have intensified trade and financial relations. All of these factors may have contributed to existing market integration. As cooperation among these countries increases, it is likely that the number of outside common trends will decrease and that the stock markets will become even more integrated.

Our findings have some implications for international portfolio diversification. Overall, the results suggest that investing in several Arab stock markets may offer limited opportunity for further long-term risk diversification. Investors desiring to diversify their portfolios vis-à-vis developed and other non-Arab emerging stock markets may be able to achieve additional diversification by investing in Jordan. The ASE compares favorably with many other Arab markets in terms of investment restrictions, transparency, and the regulatory environment, and has had relatively low historical price volatility. The study also shows that the Jordanian market is Granger-caused by the markets in Saudi Arabia and Kuwait. Thus, outside investors could get indirect exposure to these markets by investing in Jordan.

Our results also have important policy implications for Jordan. The fact that the ASE is cointegrated with the other Arab markets could be due to the fact that global investors see these markets as close substitutes, and the analysis shows that they are. Jordan should thus continue enhancing the transparency and the effectiveness of regulation and supervision of its capital markets so as to distinguish itself further from other markets. This would be important, as Jordan will likely rely on foreign capital inflows in the foreseeable future. Moreover, it would tend to reduce any potential contagion from adverse regional developments.

Finally, there are areas where future research might be useful. One issue that could be investigated is when the Jordanian stock market became integrated with Arab markets under study and why. Another topic could be the role of banks in the Jordanian market, and Arab Bank, in particular.”

For Comment; The more we can tie the countries in the Middle East economy, the better chances for peace in the region. One possible area is tourism. What are other possible areas for cooperation? And western media are very fond of people like Queen Rania inviting them to forums and discussions ranging from middle east politics to Islamic reformation. How does the average Arab view this or are they reflecting the view of the general Arab population or not?

Related;

Counterterrorism and stockmarkets

NEW WORLD BANK ECONOMIC PLAN FOR JORDAN

The 30 most influentional people in Jordan

Creating Incentives for Israeli-Palestinian Peace

“Suppose all government tourist-generated revenues from all of Jerusalem were divided according to a fixed formula between the two sides. For instance, Israel's current population is about 6.3 million. The populations of Gaza and the West Bank are 2.9 million. Proportionality argues that about 31 percent of tourist revenue go to Palestine and 69 percent to Israel. This division is only one possible allocation. The key is that this pooled revenue be shared according to a prearranged fixed formula.

A revenue-sharing arrangement ties the wealth flowing to the Palestinians to their ability to enforce a tourist-friendly atmosphere. Tourist income ebbs and flows with violence. As the record low tourism in Bethlehem over the recent Christmas holiday makes clear, when peace is lacking, tourism declines. In an arrangement that ties revenue to tourism, both Palestinians and Israelis have incentives to minimize violence. Because tourism is currently so much weaker in Palestinian areas, the incentive is asymmetric. A fixed revenue-sharing arrangement, regardless of where the tourist income is generated, gives both sides an interest in seeing the pie expand and gives the Palestinian leadership reasons to control the Intefada and terrorism.”

Jordan - Development policy review : a reforming state in a volatile region

Amman- the most expensive city in the Arab World

Economy of Jordan according to Wikipedia version, and according to the King

Reform in Muslim Societies- featuring Queen Rania (video)

Discussions with King Hussain- Charlie Rose and at World Affairs Council

Doing Business – Jordan; Starting a business-
“The challenges of launching a business in Jordan are shown below. Entrepreneurs can expect to go through 11 steps to launch a business over 36 days on average, at a cost equal to 45.9% of gross national income (GNI) per capita. They must deposit at least 1011.6% of GNI per capita in a bank to obtain a business registration number.”

Compare with Israel;
“Entrepreneurs can expect to go through 5 steps to launch a business over 34 days on average, at a cost equal to 5.3% of gross national income (GNI) per capita. There is no minimum deposit requirement to obtain a business registration number.”

Some Stock Exchanges in the region; Israel, Palestine, Egypt, Saudi Arabia, UAE

Arab Monetary Fund

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This page contains a single entry by Paul published on August 15, 2006 9:18 PM.

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