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Appendix

A1. Market Capitalization and Growth Patterns of the Frontier Markets Examined

Table A1

The Market Capitalization of Frontier Markets

image

Note: The market capitalisation is in millions of US dollars.

Countries in dark gray (blue in the web version) are members of the MSCI and/or S&P frontier markets indices.

Table A2

The GDP and GDP Growth for the Universe of Frontier Markets

image

Note: In millions of US dollars.

Countries in dark gray (bluein the web version) are members of the MSCI and/or S&P frontier markets indices.

Since the data for 2014 is not available for some countries, the latest data is for GDP in 2013.

A2. Graphs of the Stock Indexes

CEE frontier markets.
image
MENA frontier markets.
image
Mature markets.
image

A2. Graphs of the Weekly Returns Series

CEE frontier markets.
image
MENA frontier markets.
image
Mature markets.
image

a Frontier markets may be reclassified as emerging markets when their liquidity increases.

b To reflect the increased interest among global investors in the frontier markets, Standard & Poor’s (2007) launched the first fully investable index for frontier equity markets (S&P/IFCG Extended Frontier 150 Index). By 2008, a few other index providers (including FTSE and MSCI Barra) had emerged, to track and maintain index data on the frontier stock markets. Furthermore, the stocks traded in the frontier markets have become more accessible through several mutual funds and exchange-traded funds.

c This is due to them having better demographics. Moreover, the economies of some frontier markets are undergoing catching-up processes (as is the case of some of the new EU member states from Central and Eastern Europe).

d As examples of low-liquidity markets, Nigeria and Kenya are two of the largest countries in the frontier markets, and their average daily trading volume is only $25 million and $8 million, respectively.

e Bahrain, Bulgaria, Croatia, Estonia, Germany, Jordan, Kuwait, Lebanon, Mauritius, Oman, Qatar, Romania, Saudi Arabia, Slovenia, Tunisia, and United Arab Emirates.

f Strictly speaking, only nine of the markets listed (Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Tunisia, and United Arab Emirates) belong to the MENA region. By including Mauritius, we adopt a broader definition of MENA.

g To avoid double counting, stock prices of companies set up abroad are not included in the index.

h The data employed here is extracted from Datastream.

i This dissertation is based on the weekly trading index price, more precisely, which covers the closing price on each Friday from Dec. 9, 2005, to May 22, 2015. Thus, the whole data set includes 493 observations. In more detail, the daily trading records of all 20 markets are available only from Dec. 5, 2005. Therefore, due to the data availability Dec. 9, 2005, is the first Friday, which becomes the starting time point of our research. Moreover, the weekly data frequency has been chosen because daily trading prices contain much more noise.

j As suggested by the Jarque–Bera test for normality (Jarque and Bera, 1987). The results, not reported here, are available on request.

k The issue of nonsynchronicity across markets may, as mentioned before, affect correlations. As the opening times of the 15 frontier and 3 developed stock markets considered here vary, future research should take the lead–lag correlations into account. Second, more attention should be devoted to the dynamic model of cross-market correlations, especially when the period under scrutiny includes financial crises, during which stock markets tend to suffer from mutual influences more easily, which means that the values of cross-correlations will vary in across the precrisis, crisis, and postcrisis periods (Chiang et al., 2007).

l These are: the likelihood ratio, LR (sequential modified LR test statistic), FPE (final prediction error), AIC (Akaike information criterion), SC (Schwartz information criterion), and HQ (Hannan–Quinn information criterion). More lags are likely to be chosen by AIC (Demian, 2011), while SC tends to choose fewer lags and HQ is highly recommended due to its reliability, as stressed by Liew (2004).

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