Academic journal article The Journal of Developing Areas

Does Arab Spring Have a Spillover Effect on Dubai Financial Market? *

Academic journal article The Journal of Developing Areas

Does Arab Spring Have a Spillover Effect on Dubai Financial Market? *

Article excerpt

(ProQuest: ... denotes formulae omitted.)


Back on December 18th 2010, Mohamed Bouazizi, a young Tunisian vegetable vendor, set himself on fire after police officers banned him from selling vegetables in a humiliating way. This incident triggered a series of protests and demonstrations in Tunisia, and inspired other Arab countries to start revolutions against their regimes; these protests were referred to as the infamous "Arab Spring". On the 25th of January 2011, a wave of demonstrations and protests started in Egypt, a powerful country and one of the largest economies and most populated in the Middle East. The protesters called for an end of the regime of President Hosni Mubarak, demanded economic and political reforms, democratic elections and freedom. Under the pressure of the so-called "The 25th of January Revolution", Hosni Mubarak stepped-down on the 11th of February, 2011. Following his resignation, the Supreme Council of Armed Forces took over the control of Egypt until the parliamentary elections were conducted at the end of November 2011. The elections marked the new era of modern Egypt.

In the wake of dramatic political events like the Arab Spring, the ramifications on stock markets, especially on regional stock markets, are questionable as the signal they send has unclear implications. Although these revolutions are meant to promote democracy and help in improving economic capabilities, they might influence the behavior of investors due to the loss of confidence in the local and regional stock markets. Dubai Financial Market (DFM, hereafter) is one of the most important stock markets in the region.

Dubai derives its importance from being the most vibrant business city in the Middle East, the fastest growing city in the region, as well. Dubai is an international business hub, linking the east and the west economically and culturally. It has a highly reputable transportation infrastructure, advanced educational system, which serves both local and international students, and a world class healthcare system. Dubai being a major business center, has the presence of many large world corporations, along with being a world-known major hub of gold and diamond trading. All of that led Dubai to host the world Expo 2020, which is expected to boost the economy of Dubai city. Being located in an instable region, Dubai's economy is potentially affected by the surrounding political events. Due to the aforementioned importance of Dubai, it is imperative to learn how sensitive its financial market is to the spillovers due to Arab Spring. DFM, one of the three stock markets in UAE, was founded on March 26th, 2000, with 67 listed companies now.

The extant literature does not provide a deep insight into the Arab Spring spillover effects on the regional stock markets. This study is first to analyze the spillover effect of the Arab Spring on DFM, and it adds to the existing literature of the impact of Arab Spring on the stock markets of the Middle East. This study employs GARCH and TGARCH models and Event Study to analyze the volatility and returns of seven indices in DFM.


The relevant literature is rich of empirical studies that examine different hypothetical effects of economic news signals on the response of stock markets during different windows. For example, several studies examine the effect of macroeconomic news on interest rate and foreign exchange markets (Ederington and Lee; 1995), on volatility of Treasury bonds (Jones et al., 1998) or daily returns of the S&P500 index (Rangel, 2011; Chuliá et al., 2010; Shin, 2005; Roll, 1989). Some other studies investigate the impact of a given crisis on stock exchanges performance and volatility, such as the 1987 global crash (Choudhry, 1996) and the 1997 East Asian crisis (Caporale and Spagnolo, 2003). In fact, the political events and risks are perceived among the most influential effects on the stock market performance. …

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