Exchange Rate Volatility and Financial Market Activity in the MENA Region: New Evidence Using a Dynamic Panel Threshold Regression
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Zulkefly Abdul KARIM Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
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Abdul Hafizh Mohd AZAM Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
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Mohd Fahmi GHAZALI Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Malaysia
This study examines the impact of exchange rate volatility on financial market activity using a sample of 20 MENA countries from 1990Q1 to 2022Q4. An exchange rate volatility index was derived for each country based on the conditional variance estimated using ARCH/ GARCH models. The main findings using a dynamic panel threshold estimation technique revealed a threshold effect in the relationship between the exchange rate volatility and financial market activity. In oil-exporting countries, exchange rate volatility negatively effects on stock returns at lower or upper threshold levels in a different regime. in non-oil-exporting countries, the adverse effect intensifies when transitioning to the high-threshold regime, indicating greater sensitivity to exchange rate instability. Thus, policymakers in the MENA should formulate foreign exchange policy strategies that support exchange rate stability and assist financial market participants in improving risk management, expand the use of hedging instruments, and diversifying portfolios to withstand heightened volatility.
Copyright© 2026 The Author(s). This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.
Article’s history: Received 20th of November, 2025; Revised 22ndof December, 2025; Accepted 21st of February, 2026; Available online: 15th of March, 2026. Published as article in the Volume XXI, Special Issue, 1(91), 2026.
Hasan, A. H., Karim, A. Z., Azam, A. H. M. & Ghazali, M. F. (2026). Exchange Rate Volatility and Financial Market Activity in the MENA Region: New Evidence Using a Dynamic Panel Threshold Regression. Journal of Applied Economic Sciences, Volume XXI, Special Issue, 1(91), 75 – 98. https://doi.org/10.57017/jaes.v21.si.1(91).04
Acknowledgments/Funding: The authors acknowledge the support of the Faculty of Economics and Management at Universiti Kebangsaan Malaysia and the University of Diyala for providing academic resources and research support. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
Conflict of Interest Statement: The authors declare that no commercial or financial relationships exist that could be construed as a potential conflict of interest.
Data Availability Statement: The data used in this study are obtained from publicly available sources, including Thomson Reuters Datastream, the International Monetary Fund International Financial Statistics (IFS), the US Energy Information Administration (EIA), and the World Bank Worldwide Governance Indicators (WGI). The compiled dataset used for the empirical analysis is available from the corresponding author upon reasonable request.
Ethical Approval Statement: This study does not involve human participants, personal data, or animal subjects. All data used in the analysis are secondary macroeconomic and financial indicators obtained from publicly accessible databases. Therefore, ethical approval was not required.
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