The Quarterly Review of Economics and Finance 48 (2008) 482–504 Global and regional integration of the Middle East and North African (MENA) stock markets Jung-Suk Yu, M. Kabir Hassan ∗ University of New Orleans, LA, United States Received 28 September 2005; received in revised form 27 June 2006; accepted 30 June 2006 Available online 7 September 2006 Abstract We investigate financial integration of MENA region to facilitate a more in-depth exploration of the structure of interdependence and transmission mechanism of stock returns and volatility between MENA and world stock markets. The EGARCH-M models with a generalized error distribution are employed to consider both leverage effect of negative shocks and leptokurtosis prevalent in the MENA stock markets. The estimation results of multivariate AR-GARCH models indicate that there are large and predominantly positive volatility spillovers and volatility persistence in conditional volatility between MENA and world stock markets. Own-volatility spillovers are generally higher than cross-volatility spillovers for all the markets. © 2006 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All rights reserved. JEL classification: F36; G11; G15 Keywords: Financial integration; MENA region; Impulse response function; EGARCH-M model; Multivariate AR- GARCH model 1. Introduction Financial literature has presented a strong emphasis on the interaction amongst international stock markets (Bekaert & Harvey, 2002; Bessler & Yang, 2003; Kim & Rogers, 1995; Neaime, 2002; Phylaktis & Ravazzolo, 2002b; Stansell, 1993; Tai, 2000; Yang, Kolari, & Min, 2003). ∗ Correspondence to: Department of Economics and Finance, College of Business Administration, University of New Orleans, 2000 Lakeshore Drive, New Orleans, LA 70148, United States. Tel.: +1 504 280 6163; fax: +1 504 280 6397. E-mail address: mhassan@uno.edu (M.K. Hassan). 1062-9769/$ – see front matter © 2006 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All rights reserved. doi:10.1016/j.qref.2006.06.003