This Appendix outlines the various estimators and tests used in this paper.
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The authors would like to thank Robert Flood, Nadeem Hague, Harald Hirschhofer, Olin Liu, Manmohan Kumar, Donald Mathieson, Adnan Mazarei, Seán Nolan and Brock Short for their comments and suggestions, and Ravina Malkani and Brooks Dana Calvo for excellent research assistance. Any remaining errors are the responsibility of the authors.
See El-Erian and Tareq (1993) and Abisourour (1994) for analyses of major issues in economic reform in Arab countries, and in the development of emerging Arab capital markets, respectively. Feldman and Kumar (1994) also discuss more generally the role of equity markets in the development process.
As β→0 then consumers are more and more indifferent to the time path of consumption; as β→1 then consumers exhibit stronger preferences for present consumption over future consumption.
While the cointegrated variables are linked by a long-run equilibrium relationship they may diverge from equilibrium in the short run. However, in the long run economic forces are expected to act so as to restore equilibrium.
The Bartlett kernel takes the form k(u)=(1-|u|).1(|u|≤1), where 1(·) is the unit indicator function.
In the GMM framework, to estimate k parameters we need at least k orthogonality conditions. When the number of orthogonality conditions exceeds the number of parameters, the model is overidentified. When the instruments Zt are used, 2ρ+1 orthogonality conditions exist. These orthogonality conditions are given by setting the population moments Et [(βRt(1/gt)λ - 1) Zt] to zero. The test of over-identifying restrictions determines whether the sample analogues of the population moments are close to zero, as would be expected. The degrees of freedom of the test are given by 2ρ+1-k.
Informational inefficiencies could also arise from common factors, in addition to country specific causes. Illiquid trading in all three equity markets provides limited (if not ill-signaled) information about current inflation expectations and real rates of return on all assets. As a consequence, the influence of market fundamentals could be distorted, reflecting valuation problems in actual stock prices. In addition, it can be difficult to assess risk/return prospects in economies where large-scale structural and financial reforms are taking place.