Abstract:
Arab capital markets have gained momentum since the tum of the century ignited by high oil prices and
excess liquidity. In 2006, however, market corrections took place and financial contagion was observed in
different Arab countries. The objective of this study is to explore if the capital markets of MEN A in
general and the Gee countries in particular are integrated inter-regionally and intra-regionally with world
developed capital markets. Using daily market price indices over the period 2000-2006 and the Johansen
co-integration methodology, the findings reveal that Gee capital markets have a low degree of
integration, and that MENA markets as a whole show a moderate level of integration. At the global level,
MENA and Gee capital markets are segregated from developed markets, presenting opportunities for
risk diversification to international investors. In order to pave the way for the Gee currency integration in
2010, it is recommended that Arab countries liberalize capital markets and set-up a common regulatory
framework for harmonizing investing rules, listing requirements, and clearing systems across markets.
