Rational Speculative Bubbles: An Empirical Investigation of the Middle East and North African Stock Markets

Abstract

Despite recent extreme fluctuations of the Middle East and North African (MENA) stock markets, we do not find strong evidence of rational speculative bubbles in the perspective of both domestic and U.S.-based investors. Fractional integration tests built on ARFIMA models do not support the possibility of bubbles in the MENA stock markets. Similarly, duration dependence tests based on nonparametric Nelson-Aalen hazard functions not only reject the existence of bubbles but also support equality of hazard functions between domestic and U.S.-based investors without regard to the rapid financial liberalization and integration in the MENA stock markets.