Assessing the efficiency of the MENA emerging stock markets: A sectoral perspective

Market efficiency is among the foremost criteria for making investment decisions when foreign investors attempt to allocate their funds to emerging market assets. If the markets under consideration are efficient, quoted prices of the assets will serve as useful and reliable signals for capital budgeting. In this paper we adopt a new powerful approach to investigate the sectoral efficiency of emerging stock markets in the Middle East and North Africa (MENA) region. At the empirical level, we focus on economic sectors of stock markets and make use of the filtered Hurst exponents to assess their efficient behavior through time. We then rank economic sectors according to their level of inefficiency. Empirical results, drawn from 26 sectoral indices and 6 market indices for six MENA stock markets over the period 2000-2007, reveal the importance of banking and industrial sectors in terms of evolving market efficiency. Our findings are useful for portfolio and fund managers operating in the MENA region as they can pursue a dedicated and dynamic asset allocation based on efficiency levels of selected economic sectors.