Dynamic interactions between Egyptian equity and currency markets prior to and during political unrest

Abstract

Since the January 2011 uprising, Egypt has undergone an ongoing political unrest, which has weighed heavily on the country’s financial markets. This article aims to investigate the existence and nature of first and second moment interdependencies between the stock and currency markets of Egypt before and during the recent 2011 uprising. This investigation is conducted in the context of a bivariate EGARCH framework augmented with cointegrating residuals as an exogenous variable in both the conditional mean and conditional variance equations. The results indicate that during the pre-uprising period, there exist reciprocal mean spillover effects between the equity and currency markets. However, during the in-uprising period, only unidirectional mean spillover effects from the equity market to the currency counterpart is detected. Additionally, over both periods, a unidirectional volatility transmission from the equity market to the currency counterpart is observed. The response pattern of volatility is found...