Country Risk, Risk Assessment, and International Portfolio Diversification in Selected MENA Markets

Since the 1990s, the emerging stock markets attracted large flows of international capital providing investment opportunities for global investors. The thesis investigates the role of country risk composed of political risk (PR), economic risk (ER), financial risk (FR), and Oil in risk assessment for investment opportunities in selected Middle East and North African (MENA) financial markets. The analysis uses monthly data for Jordan, Turkey, Egypt, Morocco, Saudi Arabia, and Tunisia for January 2005 – December 2018 that includes both the tranquil and crisis periods such as the Arab Spring and the 2008-2009 global financial crises. For this purpose, the analysis is conducted within a two-state regime-switching framework using the Markov-switching international capital asset pricing model (MS-ICAPM). The empirical estimates suggest that investment opportunities vary both with the state of the economy and country-specific risk factors which may be helpful to international investors in their decisions regarding portfolio diversification and to government authorities in their economic policies.