In this paper, we investigate whether the recent financial turmoil which originated in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson 1999) rather than shift-contagion (Rigobon 2003). Then, we explicitly define financial “contagion” in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistent recession characterized by low mean/high variance regimes which coincides with the third phase of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market.
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