Stock-market responses, oil-price dynamics, and geopolitical risk in the MEA region

Abstract

This paper examines the symmetric and asymmetric effects of oil-price shocks and geopolitical risk (GPR) on the stock-market performance of six Middle Eastern and African economies during the period 2002-2023, utilizing the nonlinear autoregressive distributed lag (NARDL) framework. Our findings underscore the necessity of accounting for country-specific characteristics, as each market demonstrates distinct sensitivities and dynamic responses to these factors. Stock markets in Egypt, Tunisia, and Turkey are significantly influenced by both oil prices and GPR, exhibiting asymmetric long-run effects. The stock markets in Saudi Arabia and Israel respond positively to oil-price changes and display resilience to GPR, while South Africa's market demonstrates resilience and adaptability to both factors, in the long and short run. We highlight the implications of identifying the distinct sensitivities to major external shocks (geopolitical and oil-price shocks) as a prerequisite for designing financial policies at the country level. These findings offer practical guidance for policymakers to implement country-specific risk management frameworks, enhance market resilience, and tailor regulatory responses to external shocks.