The Dynamic Linkages among Sector Indices: The Case of the Egyptian Stock Market

Abstract

<p>The main thrust of this study is to investigate both the long-term and short-term links among sectors of the Egyptian equity market. The empirical analysis is carried out using Johansen’s multivariate cointegration analysis and Granger’s causality analysis. The investigation period extends from 3 April 2011 to 31 May 2015. The results of cointegration analysis indicate that there exists a single cointegrating vector within the sample sector indices. The Granger’s causality analysis shows that the short-term causal relationships between the sector indices are substantially limited and, where they exist, practically unidirectional. By and large, an important implication of these findings is that there is still possibility to obtain gains from portfolio diversification in the short run. Nonetheless, investors with long-term horizon might not be able to benefit from diversifying into the various sectors of the Egyptian market.</p>